3. Income taxes


millions of dollars	2013		2012		2011
Current income tax expense		425		593		955
Deferred income tax expense (a)		484		634		80
Total income tax expense (b)		909		1,227		1,035
Statutory corporate tax rate (percent)		25.4		25.5		25.4
Increase/(decrease) resulting from:
Enacted tax rate change				-		-
Other		(1.1)		(0.9)		(1.9)
Effective income tax rate		24.3		24.6		23.5

(a)	There were no material net (charges)/credits for the effect of changes in tax laws and rates included in the provisions for deferred income taxes in 2013, 2012 and 2011.

(b)	Cash outflow from income taxes, plus investment credits earned, was $911 million in 2013 (2012 – $871 million, 2011 – $667 million).

Deferred income taxes are based on differences between the accounting and tax values of assets and liabilities. These differences in value are re-measured at each year-end using the tax rates and tax laws expected to apply when those differences are realized or settled in the future. Components of deferred income tax liabilities and assets as at December 31 were:


millions of dollars	2013			2012			2011
Depreciation and amortization		2,949			2,434			1,948
Successful drilling and land acquisitions		815			399			378
Pension and benefits		(376	)		(717	)		(720	)
Site restoration		(287	)		(284	)		(267	)
Capitalized interest		69			53			50
Other		(99	)		39			51
Net long-term deferred income tax liabilities		3,071			1,924			1,440

LIFO inventory valuation		(450	)		(478	)		(560	)
Other		(109	)		(49	)		(30	)
Net current deferred income tax assets		(559	)		(527	)		(590	)
Valuation allowance		-			-			-
Net deferred income tax liabilities		2,512			1,397			850

Unrecognized tax benefits

Unrecognized tax benefits reflect the difference between positions taken or expected to be taken on income tax returns and the amounts recognized in the financial statements. Resolution of the related tax positions will take many years to complete. It is difficult to predict the timing of resolution for tax positions, since such timing is not entirely within the control of the company. The company’s effective tax rate will be reduced if any of these tax benefits are subsequently recognized.

The following table summarizes the movement in unrecognized tax benefits:


millions of dollars	2013			2012			2011
Balance as at January 1		143			134			147
Additions based on current year’s tax position		10			4			-
Additions for prior years’ tax positions		2			10			20
Reductions for prior years’ tax positions		(4	)		(3	)		(31	)
Reductions due to lapse of the statute of limitations		-			(2	)		(2	)
Balance as at December 31		151			143			134

The 2013, 2012 and 2011 changes in unrecognized tax benefits did not have a material effect on the company’s net income or cash flow. The company’s tax filings from 2006 to 2013 are subject to examination by the tax authorities. The Canada Revenue Agency has proposed certain adjustments to the company’s filings. Management is currently evaluating those proposed adjustments and believes that a number of outstanding matters are expected to be resolved in 2014. The impact on unrecognized tax benefits and the company’s effective income tax rate from these matters is not expected to be material.

The company classifies interest on income tax related balances as interest expense or interest income and classifies tax related penalties as operating expense.