Taxation (Tables)

12 Months Ended

Dec. 31, 2012

Income taxes consist of the following:

	Year ended December 31
(In US$ millions)	2012			2011			2010

Current tax expense:
Bermuda		-			-			-
Foreign		167			328			184
Deferred tax expense:
Bermuda		-			-			-
Foreign		58			24			14
Deferred taxes acquired during the year		-			-			-
Tax related to internal sale of assets in subsidiary, amortized for group purposes		7			(163	)		(39	)
Total provision		232			189			159
Effective tax rate		16.1	%		11.3	%		12.1	%

Income tax reconciliation

The income taxes for the years ended December 31 differed from the amount computed by applying the statutory income tax rate of 0 % as follows:

	Year ended December 31
(In US$ millions)	2012		2011		2010

Income taxes at statutory rate		-		-		-
Effect of transfers to new tax jurisdictions		7		(163)		(39	)
Effect of change on uncertain tax positions relating to prior year		91		24		-
Effect of change in taxable currency		-		-		-
Effect of taxable income in various countries		134		328		198
Total		232		189		159

Net deferred tax assets (liabilities)

Deferred Income Taxes

Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes. The net deferred tax assets (liabilities) consist of the following:

Deferred Tax Assets:

(In US$ millions)	December 31, 2012		December 31, 2011

Pension		8		11
Provisions		3		15
Property, plant and equipment		-		9
Other		2		8
Gross deferred tax asset		13		43

Deferred Tax Liability:

(In US$ millions)	December 31, 2012		December 31, 2011

Property, plant and equipment		5		-
Gain from sale of fixed assets		23		31
Foreign exchange		54		-
Other		1		13
Gross deferred tax liability		83		44

Net deferred tax		(70)		(1	)

Net deferred taxes are classified as follows:

(In US$ millions)	December 31, 2012		December 31, 2011

Short-term deferred tax asset		-		10
Long-term deferred tax asset		13		33
Short-term deferred tax liability		6		10
Long-term deferred tax liability		77		34
Net deferred tax		70		1

Future taxable income justifies the inclusion of tax loss carry-forward in the calculation of net deferred taxes.

Changes to liabilities related to unrecognized tax benefits

The changes to our liabilities related to unrecognized tax benefits, excluding interest and penalties that we recognize as a component of income tax expense, where as follows:

	Year ended December 31
(In US$ millions)	2012		2011		2010
Balance beginning of period	63		-		-
Additions during the period		91		63		-
Balance end of period		154		63		-

Earliest tax years that remain subject to examination by major taxable jurisdictions

The parent company, Seadrill Limited, is headquartered in Bermuda where we have been granted a tax exemption until 2035. Other jurisdictions in which the Company and its subsidiaries operate are taxable based on rig operations. A loss in one jurisdiction may not be offset against taxable income in another jurisdiction. Thus, the Company may pay tax within some jurisdictions even though it may have an overall loss at the consolidated level. The following table summarizes the earliest tax years that remain subject to examination by the major taxable jurisdictions in which the Company operates:

Jurisdiction	Earliest Open Year
Australia	2008
Nigeria	2007
Norway	2007
Thailand	2003

- Definition

Tabular disclosure of tax positions taken in the tax returns filed or to be filed for which it is more likely than not that the tax position will not be sustained upon examination by taxing authorities (i.e., uncertain tax positions) and other types of income tax contingencies, including: (1) the policy on classification of interest and penalties; (2) a tabular reconciliation of the total amounts of unrecognized tax benefits at the beginning and end of the period; the total amount(s) of: (3) unrecognized tax benefits that, if recognized, would affect the effective tax rate, and (4) interest and penalties recognized in each of the income statement and balance sheet; (5) for positions for which it is reasonably possible that the total amounts unrecognized will significantly change within 12 months of the reporting date the: (i) nature of the uncertainty, (ii) nature of the event that could occur that would cause the change, and (iii) an estimate of the range of the reasonably possible change or a statement that an estimate of the range cannot be made; and (6) a description of tax years that remain subject to examination by major tax jurisdictions.

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