INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

NOTE 10 - INCOME TAXES

The following summarizes domestic and foreign components of income (loss) from continuing operations before domestic and foreign income taxes for the years ended December 31:

millions	2021		2020		2019
Domestic	$	1,966	$	(15,322)	$	(1,632)
Foreign	1,739		(383)		1,986
Total	$	3,705	$	(15,705)	$	354

The following summarizes components of income tax expense (benefit) on continuing operations for the years ended December 31:

millions	2021		2020		2019
Current
Federal	$	173	$	(126)	$	33
State and Local	36		6		46
Foreign	660		465		1,809
Total current tax expense	$	869	$	345	$	1,888
Deferred
Federal	191		(2,384)		(130)
State and Local	(153)		(103)		17
Foreign	8		(30)		(914)
Total deferred tax expense (benefit)	$	46	$	(2,517)	$	(1,027)
Total income tax expense (benefit)	$	915	$	(2,172)	$	861

The following reconciliation of the U.S federal statutory income tax rate to Occidental’s worldwide effective tax rate on income from continuing operations for the years ended December 31 is stated as a percentage of income (loss) from continuing operations before income taxes:

	2021		2020		2019
U.S. federal statutory tax rate	21	%	21	%	21	%
Enhanced oil recovery credit and other general business credits	(3)		—		(2)
Goodwill impairment	—		(3)		—
Capital loss	(2)		—		—
Tax impact from foreign operations	8		(4)		135
State income taxes, net of federal benefit	(2)		—		14
Uncertain tax positions	—		—		7
Transaction costs	—		—		10
Non-controlling interest	—		—		(8)
Executive compensation limitation	1		—		12
Stock warrants	—		—		(5)
WES loss of control	—		—		58
Other	2		—		1
Worldwide effective tax rate	25	%	14	%	243	%

In 2021, Occidental’s worldwide effective tax rate was 25%, which was higher than the U.S. statutory rate of 21% due to higher tax rates in the foreign jurisdictions in which Occidental operates, partially offset by the tax impact of business credits, state tax revaluations and other domestic tax benefits.

In 2020, Occidental’s worldwide effective tax rate was 14%, which was largely a result of the impairment of the WES goodwill and certain international assets for which Occidental received no tax benefit and higher-taxed international operations which generally caused Occidental’s tax rate to vary significantly from the U.S. corporate tax rate.

The tax effects of temporary differences resulting in deferred income taxes as of December 31:

millions	2021		2020
Deferred tax liabilities
Property, plant and equipment differences	$	(9,905)	$	(10,744)
Equity investments, partnerships and international subsidiaries	(571)		(658)
Gross long-term deferred tax liabilities	(10,476)		(11,402)
Deferred tax assets
Environmental reserves	242		257
Postretirement benefit accruals	285		398
Deferred compensation and benefits	286		186
Asset retirement obligations	850		942
Foreign tax credit carryforwards	3,904		4,465
General business credit carryforwards	698		607
Net operating loss carryforward	1,628		1,797
Interest expense carryforward	28		668
All other	689		720
Gross long-term deferred tax assets	8,610		10,040
Valuation allowance	(5,136)		(5,695)
Net long-term deferred tax assets	$	3,474	$	4,345
Total deferred income tax liability, net	$	(7,002)	$	(7,057)
Less: foreign deferred tax asset in long-term receivables and other assets, net	(37)		(56)
Total deferred income tax liability, gross	$	(7,039)	$	(7,113)

Total deferred tax assets, after valuation allowances, were $3.5 billion and $4.3 billion as of December 31, 2021, and 2020, respectively. Occidental expects to realize the recorded deferred tax assets, net of any allowances, through future operating income and reversal of temporary differences. The total deferred tax liabilities were $10.5 billion and $11.4 billion as of December 31, 2021 and 2020, respectively. The decrease in the net deferred tax liability in 2021 compared to 2020 was primarily driven by the impact of lower capital spending and domestic asset impairments for which Occidental does not receive an immediate tax benefit, partially offset by the utilization of net operating losses and other tax attributes.

As of December 31, 2021, Occidental had foreign tax credit carryforwards of $3.9 billion, federal general business credits carryforwards of $659 million and state tax credit carryforwards of $39 million. Occidental has recorded a valuation allowance for $3.9 billion of the foreign tax credit carryforwards and $34 million of the state tax credit carryforwards.

As of December 31, 2021, Occidental had tax-effected federal net operating loss carryforwards of $511 million, foreign net operating loss carryforwards of $833 million and state net operating loss carryforwards of $284 million. The carryforward balances have varying carryforward periods through 2041, excluding certain attributes for which there is an indefinite carryforward period. A valuation allowance was recorded for $244 million of the tax-effected state net operating loss carryforwards and $797 million of the tax-effected foreign net operating loss carryforwards. Occidental has an additional valuation allowance of $145 million against other foreign deferred tax assets.

Occidental had no tax-effected federal interest expense carryforward and tax-effected state interest expense carryforward of $28 million as of December 31, 2021. Occidental recorded a valuation allowance for $9 million of the state interest expense carryforward.

A deferred tax liability has not been recognized for temporary differences related to unremitted earnings of certain consolidated international subsidiaries aggregating approximately $916 million as of December 31, 2021, as it is Occidental’s intention to reinvest such earnings indefinitely. If the earnings of these international subsidiaries were not indefinitely reinvested, an additional deferred tax liability of approximately $219 million would be required.

As a result of a legal entity reorganization, management will make an adjustment to the tax basis in a portion of its operating assets, thus reducing Occidental’s deferred tax liabilities. Accordingly, in the first quarter of 2022, Occidental will record a one-time non-cash tax benefit that is currently estimated not to exceed $2.6 billion, in connection with this

reorganization. The timing of any reduction in Occidental’s future cash taxes as a result of this legal entity reorganization will be dependent on a number of factors, including prevailing commodity prices, capital activity level and production mix. Occidental will complete its review of its tax basis calculations, fair value assessments and other information and will finalize the adjustment to its deferred tax liabilities during the first quarter of 2022.

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

millions	2021		2020		2019
Balance as of January 1	$	2,045	$	2,173	$	—
Increase related to Anadarko Acquisition	—		—		2,143
Increases related to prior-year positions	75		14		30
Settlements	(80)		(42)		—
Reductions for tax positions of prior years	(14)		(100)		—
Balance as of December 31	$	2,026	$	2,045	$	2,173

The December 31, 2021 balance of unrecognized tax benefits of $2.0 billion included potential benefits of $2.0 billion of which, if recognized, $1.6 billion would affect the effective tax rate on income. Also included were benefits of $60 million related to tax positions for which the ultimate deductibility is highly certain, but the timing of such deductibility is uncertain. Occidental records estimated potential interest and penalties related to liabilities for unrecognized tax benefits in the provisions for domestic and foreign income taxes. During 2021, Occidental recorded interest related to liabilities for unrecognized tax benefits of $58 million, for a cumulative accrued interest related to liabilities for unrecognized tax benefits of $321 million as of December 31, 2021. There were no penalties associated with liabilities for unrecognized tax benefits recorded for the years ended December 31, 2021 and 2020. Over the next 12 months, it is reasonably possible that there will not be a decrease in the total amount of unrecognized tax benefits resulting from settlements with taxing authorities or statute of limitations lapses.

Occidental recognized $105 million and $110 million in federal and state income tax receivables as of December 31, 2021, and 2020, respectively, which was recorded in other current assets. In addition, Occidental recognized $33 million and $24 million associated with audits as of December 31, 2021 and 2020, respectively, both of which were recorded in long-term receivables and other assets, net.

Occidental is subject to audit by various tax authorities in varying periods. See Note 13 - Lawsuits, Claims, Commitments and Contingencies for a discussion of these matters.