DOMESTIC AND FOREIGN INCOME TAXES

12 Months Ended

Dec. 31, 2012

DOMESTIC AND FOREIGN INCOME TAXES

DOMESTIC AND FOREIGN INCOME TAXES

NOTE 10 DOMESTIC AND FOREIGN INCOME TAXES

The domestic and foreign components of income from continuing operations before domestic and foreign income taxes and net of noncontrolling interest amounts were as follows:

For the years ended December 31, (in millions)	Domestic			Foreign		Total
2012	$	2,117	(a)	$	5,636	$	7,753
2011	$	4,806		$	6,035	$	10,841
2010	$	3,295		$	4,269	$	7,564

(a) Includes pre-tax charges of $1.8 billion for the impairment of domestic gas assets and related items.

The provisions (credits) for domestic and foreign income taxes on continuing operations consisted of the following:

For the years ended December 31, (in millions)	United States Federal			State and Local		Foreign		Total
2012
Current	$	(401	)	$	8	$	2,383	$	1,990
Deferred	1,046			41		41		1,128
	$	645		$	49	$	2,424	$	3,118
2011
Current	$	320		$	88	$	2,357	$	2,765
Deferred	1,340			47		49		1,436
	$	1,660		$	135	$	2,406	$	4,201
2010
Current	$	614		$	79	$	1,896	$	2,589
Deferred	390			4		12		406
	$	1,004		$	83	$	1,908	$	2,995

The following reconciliation of the United States federal statutory income tax rate to Occidental’s worldwide effective tax rate on income from continuing operations is stated as a percentage of pre-tax income:

For the years ended December 31,	2012		2011		2010
United States federal statutory tax rate	35	%	35	%	35	%
Operations outside the United States	5		4		5
State income taxes, net of federal benefit	1		1		1
Other	(1	)	(1	)	(1	)
Worldwide effective tax rate	40	%	39	%	40	%

The tax effects of temporary differences resulting in deferred income taxes at December 31, 2012 and 2011 were as follows:

	2012					2011
Tax effects of temporary differences (in millions)	Deferred Tax Assets			Deferred Tax Liabilities		Deferred Tax Assets			Deferred Tax Liabilities
Property, plant and equipment differences	$	—		$	7,316	$	—		$	6,039
Equity investments, partnerships and foreign subsidiaries	—			351		—			351
Environmental reserves	126			—		131			—
Postretirement benefit accruals	413			—		410			—
Deferred compensation and benefits	278			—		286			—
Asset retirement obligations	367			—		318			—
Foreign tax credit carryforwards	1,277			—		1,240			—
Other tax credit carryforwards	195			—		—			—
Federal benefit of state income taxes	89			—		104			—
All other	334			161		374			116
Subtotal	3,079			7,828		2,863			6,506
Valuation allowance	(1,040		)	—		(1,003		)	—
Total deferred taxes	$	2,039		$	7,828	$	1,860		$	6,506

Included in total deferred tax assets was a current portion aggregating $250 million and $200 million as of December 31, 2012 and 2011, respectively, that was reported in other current assets.  Total deferred tax assets were $2.0 billion and $1.9 billion as of December 31, 2012 and 2011, respectively, the noncurrent portion of which is netted against deferred tax liabilities.  Occidental expects to realize the recorded deferred tax assets, net of any allowances, through future operating income and reversal of temporary differences.

Occidental had, as of December 31, 2012, foreign tax credit carryforwards of $1.3 billion, which expire in varying amounts through 2022, and various state operating loss carryforwards, which have varying carryforward periods through 2025.  Substantially all of Occidental’s valuation allowance is provided for foreign tax credit and state operating loss carryforwards.

A deferred tax liability has not been recognized for temporary differences related to unremitted earnings of certain consolidated foreign subsidiaries aggregating approximately $8.1 billion at December 31, 2012, as it is Occidental’s intention, generally, to reinvest such earnings permanently.  If the earnings of these foreign subsidiaries were not indefinitely reinvested, an additional deferred tax liability of approximately $116 million would be required, assuming utilization of available foreign tax credits.

Discontinued operations include income tax charges of $7 million and $86 million in 2012 and 2011, respectively, and  income tax benefits of $26 million in 2010.

Additional paid-in capital was credited $8 million in 2012, $14 million in 2011 and $22 million in 2010 for an excess tax benefit from the exercise of certain stock-based compensation awards.

As of December 31, 2012, Occidental had liabilities for unrecognized tax benefits of approximately $76 million included in deferred credits and other liabilities — other, all of which, if subsequently recognized, would favorably affect Occidental’s effective tax rate.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

For the years ended December 31, (in millions)	2012			2011
Balance at January 1,	$	67		$	38
Additions based on tax positions related to the current year	16			44
Reductions based on tax positions related to prior years and settlements	(7		)	(15		)
Balance at December 31,	$	76		$	67

Occidental records estimated potential interest and penalties related to liabilities for unrecognized tax benefits in the provisions for domestic and foreign income taxes and these amounts were not material for the years ended December 31, 2012, 2011 and 2010.

Occidental is subject to audit by various tax authorities in varying periods.  See Note 9 for a discussion of these matters.

Management believes it is unlikely that Occidental’s liabilities for unrecognized tax benefits related to existing matters would increase or decrease within the next twelve months by a material amount.  Occidental cannot reasonably estimate a range of potential changes in such benefits due to the unresolved nature of the various audits.