INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

Geographic sources of income (losses) before income taxes and equity in affiliated companies’ net earnings for the years ended December 31 consist of the following:

	2021		2020		2019
U.S.	$	1,861	$	(40)	$	(287)
Foreign	5,798		1,837		593
Total	$	7,659	$	1,797	$	306

Income taxes are provided on the earnings of FCX’s material foreign subsidiaries under the assumption that these earnings will be distributed. FCX has not provided deferred income taxes for other differences between the book and tax carrying amounts of its investments in material foreign subsidiaries as FCX considers its ownership positions to be permanent in duration, and quantification of the related deferred tax liability is not practicable. 

FCX’s provision for income taxes for the years ended December 31 consists of the following:

	2021			2020			2019
Current income taxes:
Federal	$	—		$	53	a	$	(23)	b,c
State	(11)			(1)			3
Foreign	(2,460)			(816)		d	(462)
Total current	(2,471)			(764)			(482)
Deferred income taxes:
Federal	(184)			3			48
State	(4)			5			8
Foreign	(23)			(306)			(101)
Total deferred	(211)			(298)			(45)
Adjustments	193		e	37			12
Operating loss carryforwards	190			81			5
Provision for income taxes	$	(2,299)		$	(944)		$	(510)

a.Includes a credit of $53 million associated with the reversal of the charge discussed in footnote c below.

b.As a result of the 2017 Tax Cuts and Jobs Act (the Act) guidance released in 2019, FCX recorded a $29 million credit.

c.Includes a charge of $53 million associated with the sale of FCX’s interest in the lower zone of the Timok exploration project.

d.Includes a charge of $135 million associated with the gain on sale of Kisanfu.

e.Primarily reflects the release of valuation allowances on NOLs at PT Rio Tinto (see below).

A reconciliation of the U.S. federal statutory tax rate to FCX’s effective income tax rate for the years ended December 31 follows:

	2021				2020				2019
	Amount		Percent		Amount		Percent		Amount			Percent
U.S. federal statutory tax rate	$	(1,608)	(21)	%	$	(377)	(21)	%	$	(64)		(21)	%
Valuation allowancea	221		3		(210)		(12)		(149)			(49)
PT Rio Tinto valuation allowancea	189		2		—		—		—			—
PT-FI historical tax disputesb	(193)		(3)		(8)		—		(145)			(47)
Percentage depletion	221		3		104		6		118			39
Effect of foreign rates different than the U.S.
federal statutory rate	(328)		(4)		(109)		(6)		(64)			(21)
Withholding and other impacts on
foreign earnings	(678)		(9)		(193)		(11)		(55)			(18)
Adjustment to deferred taxes	—		—		—		—		(49)		c	(16)
Non-deductible permanent differences	—		—		—		—		(47)			(15)
Uncertain tax positions	13		—		(15)		(1)		(47)			(15)
U.S. tax reform	—		—		—		—		29		d	9
Foreign tax credit limitation	(11)		—		28		2		(16)			(5)
State income taxes	(14)		—		(2)		—		16			6
Cerro Verde historical tax disputese	—		—		(39)		(2)		2			1
Timok exploration project sale	—		—		53		3		(15)			(5)
Sale of Kisanfu	—		—		(135)		(8)		—			—
Other items, net	(111)		(1)		(41)		(3)		(24)			(9)
Provision for income taxes	$	(2,299)	(30)	%	$	(944)	(53)	%	$	(510)		(166)	%

a.Refer to “Valuation Allowance” below.

b.Refer to “Income Tax Matters” below.

c.Represents net charges primarily to adjust deferred taxes on historical balance sheet items in accordance with tax accounting principles.

d.As a result of the Act guidance released in 2019, FCX recorded a $29 million credit.

e.Refer to Note 12 for further discussion.

FCX paid federal, state and foreign income taxes totaling $1.3 billion in 2021, $397 million in 2020 and $610 million in 2019. FCX received refunds of federal, state and foreign income taxes of $109 million in 2021, $265 million in 2020 and $306 million in 2019.

The components of deferred taxes follow:

	December 31,
	2021		2020
Deferred tax assets:
Foreign tax credits	$	1,536	$	1,641
Accrued expenses	1,193		1,194
Net operating losses (NOLs)	2,220		2,443
Employee benefit plans	105		177
Other	252		227
Deferred tax assets	5,306		5,682
Valuation allowances	(4,087)		(4,732)
Net deferred tax assets	1,219		950
Deferred tax liabilities:
Property, plant, equipment and mine development costs	(4,492)		(4,489)
Undistributed earnings	(807)		(694)
Other	(152)		(175)
Total deferred tax liabilities	(5,451)		(5,358)
Net deferred tax liabilities	$	(4,232)	$	(4,408)

Tax Attributes. At December 31, 2021, FCX had (i) U.S. foreign tax credits of $1.5 billion that will expire between 2022 and 2027, (ii) U.S. federal net operating losses (NOLs) of $6.1 billion that primarily expire between 2036 and 2037, of which $0.2 billion can be carried forward indefinitely, (iii) U.S. state NOLs of $10.9 billion that primarily expire between 2022 and 2041, (iv) Spanish NOLs of $0.5 billion that can be carried forward indefinitely and (v) Indonesia NOLs of $0.9 billion that expire between 2022 and 2026.

Valuation Allowances. On the basis of available information at December 31, 2021, including positive and negative evidence, FCX has provided valuation allowances for certain of its deferred tax assets where it believes it is more- likely-than-not that some portion or all of such assets will not be realized. Valuation allowances totaled $4.1 billion at December 31, 2021, and covered all of FCX’s U.S. foreign tax credits and U.S. federal NOLs, substantially all of its U.S. state NOLs, and a portion of its foreign NOLs. Valuation allowances totaled $4.7 billion at December 31, 2020, and covered all of FCX’s U.S. foreign tax credits, U.S. federal NOLs, foreign net operating losses and substantially all of its U.S. state NOLs.

The valuation allowance related to FCX’s U.S. foreign tax credits totaled $1.5 billion at December 31, 2021. FCX has operations in tax jurisdictions where statutory income taxes and withholding taxes are in excess of the U.S. federal income tax rate. Valuation allowances are recognized on foreign tax credits for which no benefit is expected to be realized.

The valuation allowance related to FCX’s U.S. federal, state and foreign NOLs totaled $2.0 billion and other deferred tax assets totaled $561 million at December 31, 2021. NOLs and deferred tax assets represent future deductions for which a benefit will only be realized to the extent these deductions offset future income. FCX develops an estimate of which future tax deductions will be realized and recognizes a valuation allowance to the extent these deductions are not expected to be realized in future periods.

Valuation allowances will continue to be carried on U.S. foreign tax credits, U.S. federal, state and foreign NOLs and U.S. federal, state and foreign deferred tax assets, until such time that (i) FCX generates taxable income against which any of the assets, credits or NOLs can be used, (ii) forecasts of future income provide sufficient positive evidence to support reversal of the valuation allowances or (iii) FCX identifies a prudent and feasible means of securing the benefit of the assets, credits or net operating losses that can be implemented.

The $645 million net decrease in the valuation allowances during 2021 is primarily related to a $219 million decrease associated with U.S. federal NOLs utilized during 2021, a $105 million decrease related to expirations of U.S. foreign tax credits and $228 million decrease associated with PT Rio Tinto NOLs resulting from positive evidence supporting future taxable income against which net operating losses can be used. Changes in assumptions about future taxable income against which PT Rio Tinto NOLs can be utilized resulted from delays in timing of the anticipated merger of PT Rio Tinto into PT-FI.

Other Events. In connection with the negative impacts of the COVID-19 pandemic on the global economy, governments throughout the world announced measures that are intended to provide tax and other financial relief. Such measures include the American Rescue Plan Act of 2021, enacted on March 11, 2021, and the Coronavirus Aid, Relief, and Economic Security Act (CARES Act), enacted on March 27, 2020. None of these measures resulted in material impacts to FCX’s provision for income taxes for the years ended December 31, 2021 and 2020. However, certain provisions of the CARES Act provided FCX with the opportunity to accelerate collections of tax refunds, primarily those associated with the U.S. alternative minimum tax (AMT). FCX collected U.S. AMT refunds of $24 million in 2021 and $244 million in 2020. FCX continues to evaluate income tax accounting considerations of COVID-19 measures as they develop, including any impact on its measurement of existing deferred tax assets and deferred tax liabilities. FCX will recognize any impact from COVID-19 related changes to tax laws in the period in which the new legislation is enacted.

Indonesia Tax Matters. In 2018, PT-FI received unfavorable Indonesia Tax Court decisions with respect to its appeal of capitalized mine development costs on its 2012 and 2014 corporate income tax returns. PT-FI appealed those decisions to the Indonesia Supreme Court. In 2019, the Indonesia Supreme Court communicated an unfavorable ruling regarding the treatment of mine development costs on PT-FI’s 2014 tax return. During the fourth quarter of 2019, PT-FI met with the Indonesia Tax Office and developed a framework for resolution of the disputed matters. On December 30, 2019, PT-FI made a payment of $250 million based on its understanding of the framework for resolution of disputes arising from the audits of the tax years 2012 through 2016, as well as tax years 2017 and 2018. Additional administrative steps would need to be completed by both PT-FI and the Indonesia Tax Office in order to implement the resolution.

During October 2021, PT-FI participated in discussions with the Indonesia tax office regarding progress on the framework for resolution of disputes arising from the audits of tax years 2012 through 2016. As a result of these discussions and the revised positions taken by both the Indonesia tax office and PT-FI, FCX believes it can no longer conclude a resolution of all of the disputed tax items at a more-likely-than-not threshold. PT-FI will continue to engage with the Indonesia tax office in pursuit of certain aspects of the original framework for resolution.

During 2019, in conjunction with the framework for resolution, PT-FI recorded net charges totaling $304 million, including $123 million for non-deductible penalties recorded to other (expense) income, net, $78 million for non-deductible interest recorded to interest expense, net and $103 million to provision for income tax expense, primarily for the impact of a reduction in the statutory rate on PT-FI’s deferred tax assets.

During 2020, in connection with progress of the framework for resolution, PT-FI recorded additional net charges of $46 million, including $9 million for non-deductible penalties recorded to other (expense) income, net and $35 million for non-deductible interest recorded to interest expense, net, and $2 million to provision for income tax expense.

During 2021, mostly in connection with the October 2021 meeting with the Indonesia tax office and the progress of the framework for resolution, PT-FI recorded total additional net charges of $384 million, including $155 million for non-deductible penalties recorded to other (expense) income, net, $43 million for non-deductible interest recorded to interest expense, net, and $186 million to provision for income tax expense.

Peru Tax Matters. SUNAT (National Superintendency of Customs and Administration), the Peru national tax authority, has assessed mining royalties on ore processed by the Cerro Verde concentrator for the period December 2006 to December 2013, which Cerro Verde has contested on the basis that its 1998 stability agreement exempts from royalties all minerals extracted from its mining concessions, irrespective of the method used for processing those minerals. Refer to Note 12 for further discussion of the Cerro Verde royalty dispute.

In December 2016, the Peru parliament passed tax legislation that, in part, modified the applicable tax rates established in its December 2014 tax legislation, which progressively decreased the corporate income tax rate to 26 percent in 2019 and thereafter, and also increased the dividend tax rate on distributions to 9.3 percent in 2019 and thereafter. Under the tax legislation, which was effective January 1, 2017, the corporate income tax rate was 29.5 percent, and the dividend tax rate on distributions of earnings was 5 percent. Cerro Verde’s current mining stability agreement subjects it to a stable income tax rate of 32 percent through the expiration of the agreement on December 31, 2028. The tax rate on dividend distributions is not stabilized by the agreement.

Chile Tax Matters. In September 2014, the Chile legislature approved a tax reform package that implemented a dual tax system, which was amended in January 2016. Under previous rules, FCX’s share of income from Chile operations was subject to an effective 35 percent tax rate allocated between income taxes and dividend withholding taxes. Under the amended tax reform package, FCX’s Chile operation is subject to the “Partially-Integrated System,” resulting in FCX’s share of income from El Abra being subject to progressively increasing effective tax rates of 35 percent through 2019 and 44.5 percent in 2020 and thereafter. In November 2017, the progression of increasing tax rates was delayed by the Chile legislature so that the 35 percent rate continued through 2021, increasing to 44.5 percent in 2022 and thereafter. In January 2020, the Chile legislature approved a tax reform package that would further delay the 44.5 percent rate until 2027 and thereafter. 

In 2010, the Chile legislature approved an increase in mining royalty taxes to help fund earthquake reconstruction activities, education and health programs. Beginning in 2018, and through 2023 mining royalty rates at FCX’s El Abra mine are based on a sliding scale of 5 to 14 percent (depending on a defined operational margin).

Uncertain Tax Positions. FCX accounts for uncertain income tax positions using a threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FCX’s policy associated with uncertain tax positions is to record accrued interest in interest expense and accrued penalties in other (expense) income, net rather than in the provision for income taxes.

A summary of the activities associated with FCX’s reserve for unrecognized tax benefits for the years ended December 31 follows. The balance at year-end December 31, 2019, was revised by $115 million and the balance at year-end December 31, 2020, was revised by $179 million to adjust for amounts paid on accruals not yet settled.

	2021		2020		2019
Balance at beginning of year	$	474	$	491	$	494
Additions:
Prior year tax positions	330		56		86
Current year tax positions	71		60		11
Decreases:
Prior year tax positions	(30)		(82)		(75)
Settlements with taxing authorities	(37)		(51)		(25)
Balance at end of year	$	808	$	474	$	491

The total amount of accrued interest and penalties associated with unrecognized tax benefits was $620 million at December 31, 2021, primarily relating to unrecognized tax benefits associated with cost recovery methods and royalties and other related mining taxes, and $307 million at December 31, 2020, and $339 million at December 31, 2019.

The reserve for unrecognized tax benefits of $808 million at December 31, 2021, included $694 million ($465 million net of income tax benefits and valuation allowances) that, if recognized, would reduce FCX’s provision for income taxes. Changes in the reserve for unrecognized tax benefits associated with current and prior-year tax positions were primarily related to uncertainties associated with FCX's tax treatment of cost recovery methods. There continues to be uncertainty related to the timing of settlements with taxing authorities, but if additional settlements are agreed upon during the year 2022, FCX could experience a change in its reserve for unrecognized tax benefits.

FCX or its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The tax years for FCX’s major tax jurisdictions that remain subject to examination are as follows:

Jurisdiction	Years Subject to Examination	Additional Open Years
U.S. Federal	2017-2018	2014-2016, 2019-2021
Indonesia	2011-2018	2020-2021
Peru	2016	2017-2021
Chile	2020	2018-2019, 2021