Income Taxes (Tables)

12 Months Ended

Dec. 31, 2017

Income from continuing operations before income tax expense from U.S. and international operations

Income before income tax expense (benefit) was as follows (in millions):



	Year Ended December 31,
	2017		2016		2015
U.S. operations	$	2,283	$	1,733	$	5,327
International operations	924		1,449		644
Income before income tax expense (benefit)	$	3,207	$	3,182	$	5,971

Reconciliation of income tax expense related to continuing operations to income tax expense at statutory rate

Statutory income tax rates applicable to the countries in which we operate were as follows:



	Year Ended December 31,
	2017		2016		2015
U.S. (a)	35	%	35	%	35	%
Canada	15	%	15	%	15	%
U.K.	19	%	20	%	20	%
Ireland	13	%	13	%	13	%
Aruba (b)	n/a		7	%	7	%

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(a)	Statutory income tax rate was reduced to 21 percent effective January 1, 2018 as described in “Tax Reform” above.


(b)	Statutory income tax rate applicable through the date of the Aruba Disposition as described in Note 2.

The following is a reconciliation of income tax expense (benefit) computed by applying statutory income tax rates as reflected in the preceding table to actual income tax expense (benefit) related to our operations (in millions):



	Year Ended December 31, 2017
	U.S.					International				Total
	Amount			Percent		Amount		Percent		Amount			Percent
Income tax expense at statutory rates	$	799		35.0	%	$	158	17.1	%	$	957		29.8	%
U.S. state and Canadian provincial tax expense, net of federal income tax effect	37			1.6	%	46		5.0	%	83			2.6	%
Permanent differences:
Manufacturing deduction	(42		)	(1.8	)%	—		—		(42		)	(1.3	)%
Other	(9		)	(0.4	)%	—		—		(9		)	(0.3	)%
Change in tax law	(1,862		)	(81.6	)%	—		—		(1,862		)	(58.1	)%
Tax effects of income associated with noncontrolling interests	(31		)	(1.4	)%	—		—		(31		)	(1.0	)%
Other, net	(52		)	(2.3	)%	7		0.8	%	(45		)	(1.4	)%
Income tax expense (benefit)	$	(1,160	)	(50.9	)%	$	211	22.9	%	$	(949	)	(29.7	)%



	Year Ended December 31, 2016
	U.S.					International					Total
	Amount			Percent		Amount			Percent		Amount			Percent
Income tax expense at statutory rates	$	606		35.0	%	$	256		17.7	%	$	862		27.1	%
U.S. state and Canadian provincial tax expense, net of federal income tax effect	5			0.3	%	31			2.1	%	36			1.1	%
Permanent differences:
Manufacturing deduction	(22		)	(1.3	)%	—			—		(22		)	(0.7	)%
Other	(3		)	(0.2	)%	(10		)	(0.7	)%	(13		)	(0.4	)%
Change in tax law	—			—		(7		)	(0.5	)%	(7		)	(0.2	)%
Tax effects of income associated with noncontrolling interests	(44		)	(2.5	)%	—			—		(44		)	(1.4	)%
Other, net	(37		)	(2.1	)%	(10		)	(0.7	)%	(47		)	(1.5	)%
Income tax expense	$	505		29.2	%	$	260		17.9	%	$	765		24.0	%



	Year Ended December 31, 2015
	U.S.					International					Total
	Amount			Percent		Amount			Percent		Amount			Percent
Income tax expense at statutory rates	$	1,864		35.0	%	$	92		14.3	%	$	1,956		32.8	%
U.S. state and Canadian provincial tax expense, net of federal income tax effect	45			0.8	%	73			11.3	%	118			2.0	%
Permanent differences:
Manufacturing deduction	(102		)	(1.9	)%	—			—		(102		)	(1.7	)%
Other	(18		)	(0.3	)%	(5		)	(0.8	)%	(23		)	(0.4	)%
Change in tax law	—			—		(17		)	(2.6	)%	(17		)	(0.3	)%
Tax effects of income associated with noncontrolling interests	(39		)	(0.7	)%	—			—		(39		)	(0.7	)%
Other, net	(25		)	(0.5	)%	2			0.3	%	(23		)	(0.4	)%
Income tax expense	$	1,725		32.4	%	$	145		22.5	%	$	1,870		31.3	%

Components of income tax expense related to continuing operations

The following table details the components of our adjustment (in millions) to reflect the effects of Tax Reform for the year ended December 31, 2017, including (i) whether such amounts are complete, provisional, or incomplete, and (ii) the additional information that we need to obtain in order to complete the accounting as required by SAB 118. See “Tax Reform” above for a discussion of the provisions of SAB 118.



	Accounting Status	Amount
Income tax benefit from the remeasurement of U.S. deferred income tax assets and liabilities	Complete	$	(2,643	)
Tax on the deemed repatriation of the accumulated earnings and profits of our international subsidiaries	Provisional	734
Recognition of foreign withholding tax, net of U.S. federal tax benefit	Complete	47
Deductibility of certain executive compensation expense	Incomplete	—
Income tax expense associated with the statutory income tax rate differential on accrual to return adjustments that may be identified upon completion of our U.S. federal income tax return in 2018	Incomplete	—
Foreign tax credit available to offset the tax on deemed repatriation of the accumulated earnings and profits of our international subsidiaries	Incomplete	—
Estimated Tax Reform benefit		$	(1,862	)

Components of income tax expense (benefit) related to our operations were as follows (in millions):



	Year Ended December 31, 2017
	U.S.				International			Total
Current:
Country	$	1,305			$	194		$	1,499
U.S. state / Canadian provincial	34				61			95
Total current	1,339			(a)	255			1,594
Deferred:
Country	(2,522		)		(29		)	(2,551		)
U.S. state / Canadian provincial	23				(15		)	8
Total deferred	(2,499		)	(b)	(44		)	(2,543		)
Income tax expense (benefit)	$	(1,160	)		$	211		$	(949	)

^{___________________________}

See notes on page 116.



	Year Ended December 31, 2016
	U.S.			International			Total
Current:
Country	$	294		$	194		$	488
U.S. state / Canadian provincial	12			35			47
Total current	306			229			535
Deferred:
Country	203			35			238
U.S. state / Canadian provincial	(4		)	(4		)	(8		)
Total deferred	199			31			230
Income tax expense	$	505		$	260		$	765



	Year Ended December 31, 2015
	U.S.			International		Total
Current:
Country	$	1,513		$	64	$	1,577
U.S. state / Canadian provincial	85			43		128
Total current	1,598			107		1,705
Deferred:
Country	143			8		151
U.S. state / Canadian provincial	(16		)	30		14
Total deferred	127			38		165
Income tax expense	$	1,725		$	145	$	1,870

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(a)	Current income tax expense includes the effect of our $781 million Tax Reform adjustment as described in “Tax Reform” above.


(b)	Deferred income tax benefit includes the effect of our $2.6 billion Tax Reform adjustment as described in “Tax Reform” above.

Schedule of income taxes paid, net

Income taxes paid to U.S. and international taxing authorities were as follows (in millions):



	Year Ended December 31,
	2017		2016		2015
U.S.	$	239	$	241	$	2,092
International	171		203		1
Income taxes paid, net	$	410	$	444	$	2,093

Deferred income tax assets and liabilities

The tax effects of significant temporary differences representing deferred income tax assets and liabilities were as follows (in millions):



	December 31,
	2017			2016
Deferred income tax assets:
Tax credit carryforwards	$	69		$	65
Net operating losses (NOLs)	492			374
Inventories	135			93
Compensation and employee benefit liabilities	179			344
Environmental liabilities	47			69
Other	112			100
Total deferred income tax assets	1,034			1,045
Valuation allowance	(498		)	(374		)
Net deferred income tax assets	536			671

Deferred income tax liabilities:
Property, plant, and equipment	4,545			6,900
Deferred turnaround costs	272			450
Inventories	243			356
Investments	77			253
Other	107			73
Total deferred income tax liabilities	5,244			8,032
Net deferred income tax liabilities	$	4,708		$	7,361

Income tax credit and loss carryforwards

We had the following income tax credit and loss carryforwards as of December 31, 2017 (in millions):



	Amount		Expiration
U.S. state income tax credits	$	76	2018 through 2031
U.S. state income tax credits	11		Unlimited
U.S. state NOLs (gross amount)	9,441		2018 through 2037

Reconciliation of the change in unrecognized tax benefits

The following is a reconciliation of the change in unrecognized tax benefits, excluding related penalties and interest, (in millions):



	Year Ended December 31,
	2017			2016			2015
Balance as of beginning of year	$	936		$	964		$	989
Additions based on tax positions related to the current year	33			36			36
Additions for tax positions related to prior years	15			11			83
Reductions for tax positions related to prior years	(42		)	(46		)	(82		)
Reductions for tax positions related to the lapse of applicable statute of limitations	(1		)	(3		)	(3		)
Settlements	—			(237		)	(59		)
Reclassification of uncertain tax receivable to long-term receivable from IRS	—			211			—
Balance as of end of year	$	941		$	936		$	964

Summary of income tax contingencies

The following is a reconciliation of unrecognized tax benefits reflected in the preceding table to our uncertain tax position liabilities that are presented in our balance sheets (in millions).



	December 31,
	2017			2016
Unrecognized tax benefits	$	941		$	936
Tax refund claim not presented in our balance sheets	(274		)	(433		)
Other	77			(5		)
Uncertain tax position liabilities presented in our balance sheets	$	744		$	498

Amounts recognized in our balance sheets for uncertain tax positions include (in millions):



	December 31,
	2017			2016
Income taxes payable	$	—		$	(7	)
Other long-term liabilities	(723		)	(465		)
Deferred tax liabilities	(21		)	(26		)
Uncertain tax position liabilities presented in our balance sheets	$	(744	)	$	(498	)