Income Taxes

We are exempt from Swiss cantonal and communal tax on income derived outside Switzerland, and we are also granted participation relief from Swiss federal tax for qualifying dividend income and capital gains related to the sale of qualifying investments in subsidiaries. We expect that the participation relief will result in a full exemption of participation income from Swiss federal income tax.

We provide for income taxes based on the laws and rates in effect in the countries in which operations are conducted, or in which we or our subsidiaries are considered resident for income tax purposes. The relationship between our pre-tax income or loss and our income tax provision or benefit varies from period to period as a result of various factors which include changes in total pre-tax income or loss, the jurisdictions in which our income is earned, the tax laws in those jurisdictions and in our operating structure.

Our income tax (provision) benefit from continuing operations consisted of the following:



	Year Ended December 31,
(Dollars in millions)	2017			2016			2015
Total Current Provision	$	(162	)	$	(115	)	$	(303	)
Total Deferred (Provision) Benefit	25			(381		)	448
(Provision) Benefit for Income Taxes	$	(137	)	$	(496	)	$	145

Weatherford records deferred tax assets for net operating losses and temporary differences between the book and tax basis of assets and liabilities that are expected to produce tax deductions in future periods. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those deferred tax assets would be deductible. The Company assesses the realizability of its deferred tax assets each period by considering whether it is more likely than not that all or a portion of the deferred tax assets will not be realized. The Company considers all available evidence (both positive and negative) when determining whether a valuation allowance is required. The Company evaluated possible sources of taxable income that may be available to realize the benefit of deferred tax assets, including projected future taxable income, the reversal of existing temporary differences, taxable income in carryback years and available tax planning strategies in making this assessment. The realizability of the deferred tax assets is dependent upon judgments and assumptions inherent in the determination of future taxable income, including factors such as future operation conditions (particularly as related to prevailing oil prices and market demand for our products and services).

Operations in various jurisdictions continue to experience losses due to the delayed recovery in the demand for oil field services. Our expectations regarding the recovery are more measured due to continue volatility in oil prices and market contraction for our products and services. Also, the Company recorded significant long-lived asset impairments and established allowances for inventory and other assets in the fourth quarter of 2017. As a result of the continued losses, and limited objective positive evidence to overcome negative evidence, the Company concluded that it needed to record additional valuation allowance of $73 million in the fourth quarter of 2017 against certain previously benefited deferred tax assets since it cannot support that it is more likely than not that the deferred tax assets will be realized.

The Company will continue to evaluate whether valuation allowances are needed in future reporting periods. Valuation allowances will remain until the Company can determine that net deferred tax assets are more likely than not to be realized. In the event that the Company were to determine that it would be able to realize the deferred income tax assets in the future as a result of significant improvement in earnings as a result of market conditions, the Company would adjust the valuation allowance, reducing the provision for income taxes in the period of such adjustment.

The difference between the income tax (provision) benefit at the Swiss federal income tax rate and the income tax (provision) benefit attributable to “Loss Before Income Taxes” for each of the three years ended December 31, 2017, 2016 and 2015 is analyzed below:



	Year Ended December 31,
(Dollars in millions)	2017			2016			2015
Swiss Federal Income Tax Rate at 7.83%	$	208		$	225		$	164
Tax on Operating Earnings Subject to Rates Different than the Swiss Federal Income Tax Rate	123			319			411
U.S. Tax Reform - Remeasure of U.S. Deferred Tax Assets	(249		)	—			—
Non-cash Tax Expense on Distribution of Subsidiary Earnings	—			(137		)	(265		)
Change in Valuation Allowance Attributed to U.S. Tax Reform	301			—			—
Change in Valuation Allowance	(459		)	(872		)	(159		)
Change in Uncertain Tax Positions	(61		)	(31		)	(6		)
(Provision) Benefit for Income Taxes	$	(137	)	$	(496	)	$	145

Our income tax provision in 2017 was $137 million on a loss before income taxes of $2.7 billion. The primary driver of the tax expense was due to profits in certain jurisdictions, deemed profit countries and withholding taxes on intercompany and third party transactions. In addition, the Company concluded that it needed to record a valuation allowance of $73 million in the fourth quarter of 2017 against certain previously benefited deferred tax assets since it cannot support that it is more likely than not that the deferred tax assets will be realized. The additional valuation allowance was partially offset by a one-time $52 million benefit as a result of the recent U.S tax reform. Our results for 2017 also include charges with no significant tax benefit principally related to asset write-downs and other charges including $928 million in long-lived asset impairments, $540 million inventory charges including excess and obsolete, $230 million in the write-down of Venezuelan receivables and $66 million of other write-downs charges and credits, $183 million in restructuring charges and the warranty fair value adjustment of $86 million.

On December 22, 2017, the U.S. enacted into law a comprehensive tax reform bill (the “Tax Cuts and Jobs Act,” or “TCJA”). The TCJA significantly revises the U.S. corporate income tax by, among other things, lowering the statutory corporate tax rate from 35% to 21%, eliminating certain deductions, imposing a mandatory one-time tax on accumulated earnings of foreign subsidiaries as of 2017 held in cash and illiquid assets (with the latter taxed at a lower rate), and a shift of the U.S. taxation of multinational corporations from a tax on worldwide income to a partial territorial system (along with certain rules designed to prevent erosion of the U.S. income tax base, such as the base erosion and anti-abuse tax). The SEC has issued guidance that allow for a measurement period of up to one year after the enactment date of the legislation to finalize the recording of the related tax impacts. The Company believes that the permanent reduction in the U.S. statutory corporate tax rate to 21% from 35% can reasonably be estimated to decrease the amount of the U.S. deferred tax assets and liabilities by $249 million with a decrease to the valuation allowance of $301 million for a net tax benefit of $52 million. The TCJA is not estimated to have other impacts on the Company’s effective tax rate because of the valuation allowance against the U.S. deferred tax assets. Any potential impact is offset by un-benefitted U.S. net operating loss carryforwards. As we do not have all the necessary information to analyze all effects of this tax reform, this is a provisional amount which we believe represents a reasonable estimate of the accounting implications of this tax reform. In addition, the various impacts of the TCJA may materially differ from the estimated impacts recognized in the fourth quarter due to regulatory guidance that may be issued in the future, tax law technical corrections, refined computations, and possible changes in the Company’s interpretations, assumptions, and actions as a result of the tax legislation. We will continue to evaluate tax reform, and adjust the provisional amounts as additional information is obtained. Any adjustment to these provisional amounts will be reported in the reporting period in which any such adjustments are determined, which will be no later than the fourth quarter of 2018.

Our income tax provision in 2016 was $496 million on a loss before income taxes of $2.9 billion. The primary component of the tax expense relates to the Company’s conclusion that certain deferred tax assets that had previously been benefited are not more likely than not to be realized. Our results for 2016 also include charges with no significant tax benefit principally related to $436 million of long-lived asset impairments, $219 million of inventory write-downs, $140 million of settlement agreement charges, $41 million of currency devaluation related to the Angolan kwanza and Egyptian pound, $78 million of bond tender premium, and $76 million of PDVSA note receivable net adjustment, $62 million in accounts receivable reserves and write-offs, and $114 million in pressure pumping related charges. In addition, we recorded $137 million for a non-cash tax expense related to an internal restructuring of subsidiaries.

In 2015, we had a tax benefit of $145 million on a loss before income taxes of $2.1 billion. The tax benefit was favorably impacted by a U.S. loss, which included restructuring, impairment charges and a worthless stock deduction. Our results for 2015 include $255 million of Land Drilling Rig impairment charges, $232 million of restructuring charges, $116 million of litigation settlements, $153 million of legacy project losses, $85 million of currency devaluation and related losses and $25 million of equity investment impairment, all with no significant tax benefit. In addition, we recorded a tax charge of $265 million for a non-cash tax expense on distribution of subsidiary earnings.

Deferred tax assets and liabilities are recognized for the estimated future tax effects of temporary differences between the tax basis of an asset or liability and its reported amount in the Consolidated Financial Statements. The measurement of deferred tax assets and liabilities is based on enacted tax laws and rates currently in effect in each of the jurisdictions in which we have operations.

The components of the net deferred tax asset (liability) attributable to continuing operations were as follows:



	December 31,
(Dollars in millions)	2017			2016
Net Operating Losses Carryforwards	$	1,208		$	1,258
Accrued Liabilities and Reserves	266			200
Tax Credit Carryforwards	99			102
Employee Benefits	39			34
Inventory	129			75
Other Differences between Financial and Tax Basis	346			252
Valuation Allowance	(1,887		)	(1,738		)
Total Deferred Tax Assets	200			183
Deferred Tax Liabilities:
Property, Plant and Equipment	(49		)	(13		)
Intangible Assets	(131		)	(212		)
Deferred Income	—			(9		)
Undistributed Subsidiary Earnings	—			—
Other Differences between Financial and Tax Basis	(71		)	(25		)
Total Deferred Tax Liabilities	(251		)	(259		)
Net Deferred Tax Asset (Liability)	$	(51	)	$	(76	)

The increase in the valuation allowance in 2017 is primarily attributable to the establishment of a valuation allowance against current year net operating losses (“NOLs”) and beginning-of-year deferred tax assets in the United Kingdom and Argentina. The overall increase in the valuation allowance in 2016 is primarily attributable to the establishment of a valuation allowance against current year net operating losses (“NOLs”) and beginning-of-year deferred tax assets in the United States, Brazil, and Colombia.

Deferred income taxes generally have not been recognized on the cumulative undistributed earnings of our non-Swiss subsidiaries because they are considered to be indefinitely reinvested or they can be distributed on a tax free basis. Distribution of these earnings in the form of dividends or otherwise may result in a combination of income and withholding taxes payable in various countries. In 2016 the company recorded a tax charge of $137 million for a non-cash tax expense related to an internal restructuring of subsidiaries. As of December 31, 2017, the pool of positive undistributed earnings of our non-Swiss subsidiaries that are considered indefinitely reinvested and may be subject to tax if distributed amounts to approximately $2.9 billion. Due to complexities in the tax laws and the manner of repatriation, it is not practicable to estimate the unrecognized amount of deferred income taxes and the related dividend withholding taxes associated with these undistributed earnings.

At December 31, 2017, we had approximately $5.0 billion of NOLs in various jurisdictions, $1.9 billion of which were generated by certain U.S. subsidiaries. Loss carryforwards, if not utilized, will mostly expire for U.S. subsidiaries from 2033 through 2037 and at various dates from 2018 through 2037 for non-U.S. subsidiaries. At December 31, 2017, we had $98 million of tax credit carryovers, of which $82 million is for U.S. subsidiaries. The U.S. credits primarily consists of $30 million of research and development tax credit carryforwards which expire from 2026 through 2036, and $52 million of foreign tax credit carryforwards which expire from 2018 through 2036.

A tabular reconciliation of the total amounts of uncertain tax positions at the beginning and end of the period is as follows:



	Year Ended December 31,
(Dollars in millions)	2017			2016			2015
Balance at Beginning of Year	$	208		$	195		$	235
Additions as a Result of Tax Positions Taken During a Prior Period	65			30			28
Reductions as a Result of Tax Positions Taken During a Prior Period	(1		)	(1		)	(9		)
Additions as a Result of Tax Positions Taken During the Current Period	12			20			5
Reductions Relating to Settlements with Taxing Authorities	(29		)	(19		)	(46		)
Reductions as a Result of a Lapse of the Applicable Statute of Limitations	(38		)	(12		)	(7		)
Foreign Exchange Effects	—			(5		)	(11		)
Balance at End of Year	$	217		$	208		$	195

Substantially all of the uncertain tax positions, if recognized in future periods, would impact our effective tax rate. To the extent penalties and interest would be assessed on any underpayment of income tax, such amounts have been accrued and classified as a component of income tax expense and other non-current liabilities in the Consolidated Financial Statements in accordance with our accounting policy. We recorded an expense of $10 million, an expense of $2 million and a benefit of $4 million of interest and penalty for the years ended December 31, 2017, 2016 and 2015, respectively. The amounts in the table above exclude cumulative accrued interest and penalties of $61 million, $51 million, and $50 million at December 31, 2017, 2016 and 2015, respectively, which are included in other liabilities.

We are subject to income tax in many of the approximately 90 countries where we operate. As of December 31, 2017, the following table summarizes the tax years that remain subject to examination for the major jurisdictions in which we operate:



Canada	2009 - 2017
Mexico	2007 - 2017
Russia	2015 - 2017
Switzerland	2010 - 2017
United States	2014 - 2017

We are continuously under tax examination in various jurisdictions. We cannot predict the timing or outcome regarding resolution of these tax examinations or if they will have a material impact on our financial statements. We anticipate that it is reasonably possible that the amount of uncertain tax positions may decrease by up to $12 million in the next twelve months due to expiration of statutes of limitations, settlements and/or conclusions of tax examinations.