Income Taxes

12 Months Ended

Dec. 31, 2013

Income Taxes [Abstract]

Income Taxes

Note 20—Income Tax
Income taxes charged to income from continuing operations were:
		Millions of Dollars
		2013		2012	2011
Income Taxes
Federal
	Current	$	724	63	1,066
	Deferred		811	624	285
Foreign
	Current		4,249	6,255	6,400
	Deferred		504	744	48
State and local
	Current		220	231	308
	Deferred		(99)	25	101
		$	6,409	7,942	8,208

Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of
assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Major
components of deferred tax liabilities and assets at December 31 were:
	Millions of Dollars
	2013		2012
Deferred Tax Liabilities
PP&E and intangibles	$	20,079	18,826
Investment in joint ventures		943	872
Inventory		86	76
Partnership income deferral		168	343
Other		724	793
Total deferred tax liabilities		22,000	20,910
Deferred Tax Assets
Benefit plan accruals		1,274	1,760
Asset retirement obligations and accrued environmental costs		4,483	3,954
Deferred state income tax		49	77
Other financial accruals and deferrals		297	544
Loss and credit carryforwards		1,487	2,062
Other		267	398
Total deferred tax assets		7,857	8,795
Less: valuation allowance		(969)	(1,345)
Net deferred tax assets		6,888	7,450
Net deferred tax liabilities	$	15,112	13,460

Current assets, long-term assets, current liabilities and long-term liabilities included deferred taxes of $703 million, $171million, $766million and $15,220million, respectively, at December 31, 2013, and $461million, $222million, $958million and $13,185million, respectively, at December 31, 2012.

We have loss and credit carryovers in multiple taxing jurisdictions. These attributes generally expire between 2015 and 2034 with some carryovers having indefinite carryforward periods.

Valuation allowances have been established to reduce deferred tax assets to an amount that will, more likely than not, be realized. During 2013, valuation allowances decreased a total of $376million. This primarily relates to a net utilization of loss carryforwards, a utilization of U.S. foreign tax credit carryforwards and relinquishment of assets. Based on our historical taxable income, expectations for the future, and available tax-planning strategies, management expects remaining net deferred tax assets will be realized as offsets to reversing deferred tax liabilities and as offsets to the tax consequences of future taxable income.

At December 31, 2013and 2012, income considered to be permanently reinvested in certain foreign subsidiaries and foreign corporate joint ventures totaled approximately $3,222million and $2,286million, respectively. Deferred income taxes have not been provided on this income, as we do not plan to initiate any action that would require the payment of income taxes. It is not practicable to estimate the amount of additional tax that might be payable on this foreign income if distributed.

The following table shows a reconciliation of the beginning and ending unrecognized tax benefits for 2013,
2012 and 2011:
	Millions of Dollars
	2013		2012	2011
Balance at January 1	$	872	1,071	1,125
Additions based on tax positions related to the current year		52	98	46
Additions for tax positions of prior years		30	48	145
Reductions for tax positions of prior years		(251)	(206)	(35)
Settlements		(48)	(108)	(206)
Lapse of statute		-	(31)	(4)
Balance at December 31	$	655	872	1,071

Included in the balance of unrecognized tax benefits for 2013, 2012 and 2011were $440million, $650million and $815 million, respectively, which, if recognized, would impact our effective tax rate.

At December 31, 2013, 2012and 2011, accrued liabilities for interest and penalties totaled $120million, $129million and $141 million, respectively, net of accrued income taxes. Interest and penalties resulted in a benefit to earnings in 2013 of $9million, a benefit to earnings in 2012 of $9million, and a charge to earnings in 2011of $10 million.

We and our subsidiaries file tax returns in the U.S. federal jurisdiction and in many foreign and state jurisdictions. Audits in major jurisdictions are generally complete as follows: United Kingdom (2010), Canada (2006), United States (2008) and Norway (2012). Issues in dispute for audited years and audits for subsequent years are ongoing and in various stages of completion in the many jurisdictions in which we operate around the world. As a consequence, the balance in unrecognized tax benefits can be expected to fluctuate from period to period. It is reasonably possible such changes could be significant when compared with our total unrecognized tax benefits, but the amount of change is not estimable.

The amounts of U.S. and foreign income from continuing operations before income taxes, with a reconciliation
of tax at the federal statutory rate with the provision for income taxes, were:
							Percent of
			Millions of Dollars				Pretax Income
				2013	2012	2011	2013		2012	2011
Income before income taxes
	from continuing operations
		United States	$	5,046	4,070	4,762	34.9	%	26.4	30.9
		Foreign		9,400	11,353	10,634	65.1		73.6	69.1
			$	14,446	15,423	15,396	100.0	%	100.0	100.0
Federal statutory income tax			$	5,056	5,398	5,389	35.0	%	35.0	35.0
Foreign taxes in excess of federal
	statutory rate			1,389	2,878	2,658	9.6		18.6	17.3
Capital loss benefit				(79)	(461)	-	(0.5)		(3.0)	-
Federal manufacturing deduction				(35)	(52)	(73)	(0.2)		(0.3)	(0.5)
State income tax				79	166	266	0.5		1.1	1.7
Other				(1)	13	(32)	-		0.1	(0.2)
			$	6,409	7,942	8,208	44.4	%	51.5	53.3

The change in the effective tax rate from 2012 to 2013 was primarily due to lower income in high tax jurisdictions in 2013. The change in the effective tax rate from 2011 to 2012was primarily due to the effect of the Company's asset disposition program, partially offset by higher income in high tax jurisdictions in 2012.

Statutory tax rate changes did not have a significant impact on our income tax expense in 2013.

In the United Kingdom, legislation was enacted on July 17, 2012, restricting corporate tax relief on decommissioning costs to 50percent, retroactively effective from March 21, 2012. Our 2012 earnings were reduced by $192million due to remeasurement of deferred tax balances as of the effective date.

In the United Kingdom, legislation was enacted on July 19, 2011, which increased the supplementary corporate tax rate applicable to U.K. Upstream activity from 20 to 32percent, retroactively effective from March 24, 2011. This resulted in the overall U.K. corporate rate increasing from 50 percent to 62percent. The enactment resulted in increased U.K. corporate income tax expense of $316million in 2011. This is comprised of $106million due to remeasurement of U.K. deferred tax liabilities, and $210 million to reflect the new rate from March 24, 2011, through December 31, 2011.