Income Taxes (Tables)

12 Months Ended

Dec. 31, 2018

Components of income tax expense (benefit)

The following table summarizes the components of our adjustment (in millions) to reflect the effects of Tax Reform for the years ended December 31, 2018 and 2017, including whether such amounts were complete, provisional, or incomplete. The amounts presented for 2018 were completed during the fourth quarter of 2018.



	Year Ended December 31,								Cumulative Tax Reform Adjustment
	2017				2018
	Accounting Status	Amount			Accounting Status	Amount
Income tax benefit from the remeasurement of U.S. deferred income tax assets and liabilities	Complete	$	(2,643	)	Complete	$	—		$	(2,643	)
Tax on the deemed repatriation of the accumulated earnings and profits of our international subsidiaries	Provisional	734			Complete	6			740
Recognition of foreign withholding tax, net of U.S. federal tax benefit	Complete	47			Complete	—			47
Deductibility of certain executive compensation expense	Incomplete	—			Complete	5			5
Income tax expense associated with the statutory income tax rate differential on accrual to return adjustments that were identified upon completion of our U.S. federal income tax return in 2018	Incomplete	—			Complete	9			9
Foreign tax credit available to offset the tax on deemed repatriation of the accumulated earnings and profits of our international subsidiaries	Incomplete	—			Complete	(32		)	(32		)
Tax Reform benefit		$	(1,862	)		$	(12	)	$	(1,874	)

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



	Year Ended December 31, 2018
	U.S.			International		Total
Current:
Country	$	432		$	141	$	573
U.S. state / Canadian provincial	37			66		103
Total current	469		(a)	207		676
Deferred:
Country	145			25		170
U.S. state / Canadian provincial	19			14		33
Total deferred	164		(b)	39		203
Income tax expense	$	633		$	246	$	879



	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	)

^{___________________________}


(a)	Current income tax expense includes a $21 million benefit and a $781 million expense related to our Tax Reform adjustment for the years ended December 31, 2018 and 2017, respectively, as described in “Tax Reform” above.


(b)	Deferred income tax expense (benefit) includes a $9 million expense and a $2.6 billion benefit related to our Tax Reform adjustment for the years ended December 31, 2018 and 2017, respectively, as described in “Tax Reform” above.



	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

Income 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,
	2018		2017		2016
U.S. operations	$	3,168	$	2,283	$	1,733
International operations	1,064		924		1,449
Income before income tax expense (benefit)	$	4,232	$	3,207	$	3,182

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,
	2018		2017		2016
U.S.	21	%	35	%	35	%
Canada	15	%	15	%	15	%
U.K.	19	%	19	%	20	%
Ireland	13	%	13	%	13	%
Peru	30	%	n/a		n/a
Mexico	30	%	n/a		n/a
Aruba	n/a		n/a		7	%

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, 2018
	U.S.					International				Total
	Amount			Percent		Amount		Percent		Amount			Percent
Income tax expense at statutory rates	$	665		21.0	%	$	163	15.3	%	$	828		19.6	%
U.S. state and Canadian provincial tax expense, net of federal income tax effect	44			1.4	%	80		7.5	%	124			2.9	%
Permanent differences	(9		)	(0.3	)%	—		—		(9		)	(0.2	)%
GILTI tax	67			2.1	%	—		—		67			1.6	%
Foreign tax credits	(50		)	(1.6	)%	—		—		(50		)	(1.2	)%
Effects of Tax Reform	(12		)	(0.4	)%	—		—		(12		)	(0.3	)%
Tax effects of income associated with noncontrolling interests	(49		)	(1.5	)%	—		—		(49		)	(1.2	)%
Other, net	(23		)	(0.7	)%	3		0.3	%	(20		)	(0.5	)%
Income tax expense	$	633		20.0	%	$	246	23.1	%	$	879		20.7	%



	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	%

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,
	2018		2017		2016
U.S.	$	1,016	$	239	$	241
International	345		171		203
Income taxes paid, net	$	1,361	$	410	$	444

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,
	2018			2017
Deferred income tax assets:
Tax credit carryforwards	$	644		$	69
Net operating losses (NOLs)	523			492
Inventories	101			135
Compensation and employee benefit liabilities	175			179
Environmental liabilities	71			47
Other	141			112
Total deferred income tax assets	1,655			1,034
Valuation allowance	(1,111		)	(498		)
Net deferred income tax assets	544			536

Deferred income tax liabilities:
Property, plant, and equipment	4,589			4,545
Deferred turnaround costs	316			272
Inventories	287			243
Investments	142			77
Other	172			107
Total deferred income tax liabilities	5,506			5,244
Net deferred income tax liabilities	$	4,962		$	4,708

Income tax credit and loss carryforwards

We had the following income tax credit and loss carryforwards as of December 31, 2018 (in millions):



	Amount		Expiration
U.S. state income tax credits	$	80	2019 through 2031
U.S. state income tax credits	6		Unlimited
U.S. foreign tax credits	575		2027
U.S. state NOLs (gross amount)	10,039		2019 through 2038

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,
	2018			2017			2016
Balance as of beginning of year	$	941		$	936		$	964
Additions based on tax positions related to the current year	23			33			36
Additions for tax positions related to prior years	28			15			11
Reductions for tax positions related to prior years	(19		)	(42		)	(46		)
Reductions for tax positions related to the lapse of applicable statute of limitations	(1		)	(1		)	(3		)
Settlements	(2		)	—			(237		)
Reclassification of uncertain tax receivable to long-term receivable from IRS	—			—			211
Balance as of end of year	$	970		$	941		$	936

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,
	2018			2017
Unrecognized tax benefits	$	970		$	941
Tax refund claim not presented in our balance sheets	(277		)	(274		)
Other	88			77
Uncertain tax position liabilities presented in our balance sheets	$	781		$	744

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



	December 31,
	2018		2017
Income taxes payable	$	42	$	—
Other long-term liabilities	721		723
Deferred tax liabilities	18		21
Uncertain tax position liabilities presented in our balance sheets	$	781	$	744