Income Taxes

9 Months Ended

Sep. 30, 2019

INCOME TAXES

During interim periods, we provide for income taxes based on our current estimated annual effective tax rate using assumptions as to (1) earnings and other factors that would affect the tax provision for the remainder of the year and (2) the operations of foreign branches and subsidiaries that are subject to local income and withholding taxes. The effective tax rate for the nine months ended September 30, 2019 and September 30, 2018 was different than the federal statutory rate of 21%, primarily due to the geographic mix of operating revenue and results that generated taxes in certain jurisdictions that exceeded the tax benefit from losses and credits in other jurisdictions, which could not be realized in the quarter due to valuation allowances being provided, and other discrete items. It is our intention to continue to indefinitely reinvest in certain of our international operations; therefore, we do not provide for withholding taxes on the possible distribution of these earnings. We do not believe the effective tax rate before discrete items is meaningful due to the ongoing shifting of geographic mix of our operating revenue and results.

In the nine-month period ended September 30, 2019, we recognized additional tax benefit of $1.9 million from discrete items, primarily related to an $8.5 million benefit from adjustment of the mandatory repatriation tax related to the Tax Act, offset by $1.8 million of additional uncertain tax positions, $1.5 million of valuation allowances and $3.3 million associated with various other issues. In the nine-month period ended September 30, 2018, we recognized additional tax expense of $60 million from discrete items, primarily related to $39 million of valuation allowances on certain deferred tax assets recognized in prior years that may not be realizable in certain foreign jurisdictions, $7.9 million of provisional mandatory repatriation tax related to the Tax Act, $4.8 million related to uncertain tax positions and $8.3 million associated with various other issues.

We conduct our international operations in a number of locations that have varying laws and regulations with regard to income and other taxes, some of which are subject to interpretation. We recognize the expense or benefit for a tax position if it is more likely than not to be sustainable upon audit by the applicable taxing authority. If this threshold is met, the tax expense or benefit is then measured and recognized at the largest amount that we believe is greater than 50% likely of being realized upon ultimate settlement.

We account for any applicable interest and penalties on uncertain tax positions as a component of our provision for income taxes on our financial statements. Including associated foreign tax credits, penalties and interest, we have accrued a net total of $20 million and $18 million in other long-term liabilities on our balance sheet for unrecognized tax liabilities as of September 30, 2019 and December 31, 2018, respectively. Changes in management's judgment related to those liabilities would affect our effective income tax rate in the periods of change.

Our tax returns are subject to audit by taxing authorities in multiple jurisdictions. These audits often take years to complete and settle. The following lists the earliest tax years open to examination by tax authorities where we have significant operations:




Jurisdiction		Periods
United States		2014
United Kingdom		2017
Norway		2015
Angola		2013
Brazil		2014
Australia		2015

We have ongoing tax audits in various jurisdictions. The outcome of these audits may have an impact on uncertain tax positions for income tax returns subsequently filed in those jurisdictions.