14. Income Taxes

Schlumberger operates in more than 100 tax jurisdictions, where statutory tax rates generally vary from 0% to 40%.

Income from continuing operations before taxes which were subject to United States and non-United States income taxes for each of the three years ended December 31, was as follows:


(Stated in millions)
	2012		2011		2010
United States	$	1,980	$	2,246	$	617
Outside United States		5,211		3,993		4,515


	$	7,191	$	6,239	$	5,132

Schlumberger recorded $161 million of pretax charges in 2012 ($52 million in the US and $109 million outside the US). Schlumberger recorded $223 million of net pretax charges in 2011 ($104 million in the US and $119 million outside the US) and $625 million of pretax credits in 2010 ($222 million of net charges in the US and $847 million of net credits outside the US). These charges and credits are included in the table above and are more fully described in Note 3 – Charges and Credits.

The components of net deferred tax assets (liabilities) were as follows:


	(Stated in millions)
	2012			2011
Postretirement benefits	$	543		$	440
Intangible assets		(1,490	)		(1,498	)
Investments in non-US subsidiaries		(317	)		(349	)
Other, net		114			132


	$	(1,150	)	$	(1,275	)

The above deferred tax balances at December 31, 2012 and 2011 were net of valuation allowances relating to net operating losses in certain countries of $256 million and $239 million, respectively.

The components of Taxes on income were as follows:


(Stated in millions)
	2012			2011			2010
Current:
United States – Federal	$	698		$	809		$	89
United States – State		53			42			14
Outside United States		1,048			684			906


	$	1,799		$	1,535		$	1,009

Deferred:
United States – Federal	$	(105	)	$	(73	)	$	161
United States – State		(7	)		(7	)		2
Outside United States		22			75			(280	)
Valuation allowance		14			(21	)		(13	)


	$	(76	)	$	(26	)	$	(130	)


Consolidated taxes on income	$	1,723		$	1,509		$	879

A reconciliation of the United States statutory federal tax rate (35%) to the consolidated effective tax rate is:


	2012			2011			2010
US statutory federal rate		35	%		35	%		35	%
Non-US income taxed at different rates		(10	)		(10	)		(14	)
Charges and credit (See Note 3)		–			–			(3	)
Other		(1	)		(1	)		(1	)


Effective income tax rate		24	%		24	%		17	%

Schlumberger conducts business in more than 100 tax jurisdictions, a number of which have tax laws that are not fully defined and are evolving. Schlumberger’s tax filings are subject to regular audit by the tax authorities. Tax liabilities are recorded based on estimates of additional taxes which will be due upon the conclusion of these audits.

A reconciliation of the beginning and ending amount of liabilities associated with uncertain tax positions for the years ended December 31, 2012, 2011 and 2010 is as follows:


	(Stated in millions)
	2012			2011			2010
Balance at beginning of year	$	1,353		$	1,338		$	1,026
Additions based on tax positions related to the current year		156			153			190
Additions for tax positions of prior years		98			49			8
Additions related to acquisitions		–			48			288
Impact of changes in exchange rates		12			(18	)		(3	)
Settlements with tax authorities		(17	)		(77	)		(36	)
Reductions for tax positions of prior years		(103	)		(102	)		(99	)
Reductions due to the lapse of the applicable statute of limitations		(46	)		(38	)		(36	)


Balance at end of year	$	1,453		$	1,353		$	1,338

The amounts above exclude accrued interest and penalties of $250 million, $225 million and $210 million at December 31, 2012, 2011 and 2010 respectively.

Schlumberger classifies interest and penalties relating to uncertain tax positions within Taxes on income in the Consolidated Statement of Income. During 2012, 2011 and 2010, Schlumberger recognized approximately $25 million, $15 million and $42 million in interest and penalties, respectively.

The following table summarizes the tax years that are either currently under audit or remain open and subject to examination by the tax authorities in the most significant jurisdictions in which Schlumberger operates:


Brazil			2006 – 2012
Canada			2005 – 2012
Mexico			2007 – 2012
Norway			2003 – 2012
Russia			2009 – 2012
Saudi Arabia			2001 – 2012
United Kingdom			2009 – 2012
United States			2008 – 2012

In certain of the jurisdictions noted above, Schlumberger operates through more than one legal entity, each of which has different open years subject to examination. The table above presents the open years subject to examination for the most material of the legal entities in each jurisdiction. Additionally, it is important to note that tax years are technically not closed until the statute of limitations in each jurisdiction expires. In the jurisdictions noted above, the statute of limitations can extend beyond the open years subject to examination.