Income Taxes

9 Months Ended

Sep. 30, 2018

Note 9. Income Taxes

The income tax expense (benefit) consists of the following:



	Three Months Ended September 30,						Nine Months Ended September 30,
(millions, except percentages)	2018			2017			2018			2017
Current	$	45		$	22		$	194		$	71
Deferred	14			(115		)	(150		)	(988		)
Total Income Tax Expense (Benefit)	$	59		$	(93	)	$	44		$	(917	)
Effective Tax Rate	19.2		%	44.7		%	5.1		%	36.9		%

Changes in US Tax Law On December 22, 2017, the US Congress enacted the Tax Cuts and Jobs Act (Tax Reform Legislation), which made significant changes to US federal income tax law, including a reduction in the federal corporate tax rate to 21%, effective January 1, 2018. In accordance with US GAAP, we recognized the effect of the rate change on deferred tax assets and liabilities as of December 31, 2017.

On April 2, 2018, the US Department of the Treasury and the Internal Revenue Service released Notice 2018-26, signaling intent to issue regulations related to the transition tax (toll tax) on a one-time “deemed repatriation” of accumulated foreign earnings for the year ended December 31, 2017. Notice 2018-26 clarifies that an Internal Revenue Code Section 965(n) election is available with respect to both current year operating losses and net operating losses from a prior year. As a result, during first quarter 2018, we released the valuation allowance recorded against foreign tax credits that will be utilized against the $268 million toll tax liability we had recorded as of December 31, 2017, resulting in a $252 million tax benefit, and reduced our estimated toll tax liability to $16 million to be paid in installments over eight years. We also recorded a corresponding expense of $107 million for the tax rate change adjustment on the previously utilized net operating losses. The impact on first quarter 2018 total tax expense, related to this additional guidance, was a net $145 million discrete tax benefit.

The ultimate impact of the Tax Reform Legislation may differ from our estimates due to changes in interpretations and assumptions made by us, as well as additional regulatory guidance that may be issued. In particular, our estimate of the impact of the toll tax is a provisional amount and our current assessment of the global intangible low-taxed income (GILTI) tax is ongoing and subject to legal interpretation. There may be further adjustments to income tax expense or benefit during fourth quarter 2018, when the final amounts are determined in accordance with Staff Accounting Bulletin No. 118.

Effective Tax Rate (ETR) At the end of each interim period, we apply a forecasted annualized effective tax rate (ETR) to current period earnings or loss before tax, which can produce interim ETR fluctuations. The ETR for the three months ended September 30, 2018 varied as compared with the three months ended September 30, 2017 primarily due to a prior year deferred tax benefit resulting from a higher forecasted annualized ETR applied to significant domestic losses.

The ETR for the nine months ended September 30, 2018 varied as compared with the nine months ended September 30, 2017, primarily due to a deferred tax benefit of $145 million recorded discretely in the current year, as discussed above, and a significant deferred tax benefit recorded at the higher prior year US tax rate of 35% on the Marcellus Shale upstream divestiture in second quarter 2017. In addition, the increase in the current income tax expense for the nine months ended September 30, 2018 is primarily due to foreign taxes on a gain associated with the first quarter 2018 divestiture of a 7.5% interest in the Tamar field, offshore Israel.

In our major tax jurisdictions, the earliest years remaining open to examination are as follows: US – 2014, Israel – 2015 (2013 with respect to Israel Oil Profits Tax) and Equatorial Guinea – 2013.