Note 15

Taxes

Income Taxes


	Year ended December 31
	2011		2010		2009

Taxes on income
U.S. Federal
Current	$	1,893	$	1,501	$	128
Deferred		877		162		(147	)
State and local
Current		596		376		216
Deferred		41		20		14

Total United States		3,407		2,059		211

International
Current		16,548		10,483		7,154
Deferred		671		377		600

Total International		17,219		10,860		7,754

Total taxes on income	$	20,626	$	12,919	$	7,965

In 2011, before-tax income for U.S. operations, including related corporate and other charges, was $10,222, compared

with before-tax income of $6,528 and $1,310 in 2010 and 2009, respectively. For international operations, before-tax income was $37,412, $25,527 and $17,218 in 2011, 2010 and 2009, respectively. U.S. federal income tax expense was reduced by $191, $162 and $204 in 2011, 2010 and 2009, respectively, for business tax credits.
The reconciliation between the U.S. statutory federal income tax rate and the company’s effective income tax rate is detailed in the following table:


	Year ended December 31
	2011			2010			2009

U.S. statutory federal income tax rate		35.0	%		35.0	%		35.0	%
Effect of income taxes from inter- national operations at rates different from the U.S. statutory rate		7.5			5.2			10.4
State and local taxes on income, net of U.S. federal income tax benefit		0.9			0.8			0.9
Prior year tax adjustments		(0.1	)		(0.6	)		(0.3	)
Tax credits		(0.4	)		(0.5	)		(1.1	)
Effects of changes in tax rates		0.5			–			0.1
Other		(0.1	)		0.4			(2.0	)

Effective tax rate		43.3	%		40.3	%		43.0	%

The company’s effective tax rate increased from 40.3 percent in 2010 to 43.3 percent in 2011. This increase primarily reflected higher effective tax rates in international upstream jurisdictions. The higher international upstream effective tax rates were driven primarily by lower utilization of non-U.S. tax credits in 2011 and the effect of changes in income tax rates between periods, which were partially offset by foreign currency remeasurement impacts between periods.

The company records its deferred taxes on a tax-jurisdiction basis and classifies those net amounts as current or noncurrent based on the balance sheet classification of the related assets or liabilities. The reported deferred tax balances are composed of the following:


	At December 31
	2011			2010

Deferred tax liabilities
Properties, plant and equipment	$	23,597		$	19,855
Investments and other		2,271			2,401

Total deferred tax liabilities		25,868			22,256

Deferred tax assets
Foreign tax credits		(8,476	)		(6,669	)
Abandonment/environmental reserves		(5,387	)		(5,004	)
Employee benefits		(4,773	)		(3,627	)
Deferred credits		(1,548	)		(2,176	)
Tax loss carryforwards		(828	)		(882	)
Other accrued liabilities		(531	)		(486	)
Inventory		(360	)		(483	)
Miscellaneous		(1,595	)		(1,676	)

Total deferred tax assets		(23,498	)		(21,003	)

Deferred tax assets valuation allowance		11,096			9,185

Total deferred taxes, net	$	13,466		$	10,438

Deferred tax liabilities at the end of 2011 increased by approximately $3,600 from year-end 2010. The increase was related to increased temporary differences for property, plant and equipment.

Deferred tax assets increased by approximately $2,500 in 2011. Increases primarily related to additional foreign tax credits arising from earnings in high-tax-rate international jurisdictions (which were substantially offset by valuation allowances) and to increased temporary differences for employee benefits. These effects were partially offset by reductions in deferred credits resulting primarily from the usage of tax benefits in international tax jurisdictions.

The overall valuation allowance relates to deferred tax assets for foreign tax credit carryforwards, tax loss carryforwards and temporary differences. It reduces the deferred tax assets to amounts that are, in management’s assessment, more likely than not to be realized. At the end of 2011, tax loss carryforwards were approximately $2,160, primarily related to various international tax jurisdictions. Whereas some of these tax loss carryforwards do not have an expiration date, others expire at various times from 2012 through 2036. Foreign tax credit carryforwards of $8,476 will expire between 2012 and 2021.

At December 31, 2011 and 2010, deferred taxes were classified on the Consolidated Balance Sheet as follows:


	At December 31
	2011			2010

Prepaid expenses and other current assets	$	(1,149	)	$	(1,624	)
Deferred charges and other assets		(1,224	)		(851	)
Federal and other taxes on income		295			216
Noncurrent deferred income taxes		15,544			12,697

Total deferred income taxes, net	$	13,466		$	10,438

Income taxes are not accrued for unremitted earnings of international operations that have been or are intended to be reinvested indefinitely. Undistributed earnings of international consolidated subsidiaries and affiliates for which no deferred income tax provision has been made for possible future remittances totaled $24,376 at December 31, 2011. This amount represents earnings reinvested as part of the company’s ongoing international business. It is not practicable to estimate the amount of taxes that might be payable on the possible remittance of earnings that are intended to be reinvested indefinitely. At the end of 2011, deferred income taxes were recorded for the undistributed earnings of certain international operations where indefinite reinvestment of the earnings is not planned. The company does not anticipate incurring significant additional taxes on remittances of earnings that are not indefinitely reinvested.

Uncertain Income Tax Positions Under accounting standards for uncertainty in income taxes (ASC 740-10), a company recognizes a tax benefit in the financial statements for an uncertain tax position only if management’s assessment is that the position is “more likely than not” (i.e., a likelihood greater than 50 percent) to be allowed by the tax jurisdiction based solely on the technical merits of the position. The term “tax position” in the accounting standards for income taxes refers to a position in a previously filed tax return or a position expected to be taken in a future tax return that is reflected in measuring current or deferred income tax assets and liabilities for interim or annual periods.

The following table indicates the changes to the company’s unrecognized tax benefits for the years ended December 31, 2011, 2010 and 2009. The term “unrecognized tax benefits” in the accounting standards for income taxes refers to the differences between a tax position taken or expected to be taken in a tax return and the benefit measured and recognized in the financial statements. Interest and penalties are not included.


	2011			2010			2009

Balance at January 1	$	3,507		$	3,195		$	2,696
Foreign currency effects		(2	)		17			(1	)
Additions based on tax positions taken in current year		469			334			459
Reductions based on tax positions taken in current year		–			–			–
Additions/reductions resulting from current-year asset acquisitions/sales		(41	)		–			–
Additions for tax positions taken in prior years		236			270			533
Reductions for tax positions taken in prior years		(366	)		(165	)		(182	)
Settlements with taxing authorities in current year		(318	)		(136	)		(300	)
Reductions as a result of a lapse of the applicable statute of limitations		(4	)		(8	)		(10	)

Balance at December 31	$	3,481		$	3,507		$	3,195

Approximately 80 percent of the $3,481 of unrecognized tax benefits at December 31, 2011, would have an impact on the effective tax rate if subsequently recognized. Certain of these unrecognized tax benefits relate to tax carryforwards that may require a full valuation allowance at the time of any such recognition.

Tax positions for Chevron and its subsidiaries and affiliates are subject to income tax audits by many tax jurisdictions throughout the world. For the company’s major tax jurisdictions, examinations of tax returns for certain prior tax years had not been completed as of December 31, 2011. For these jurisdictions, the latest years for which income tax examinations had been finalized were as follows: United States – 2007, Nigeria – 2000, Angola – 2001, Saudi Arabia – 2003 and Kazakhstan – 2005.

The company engages in ongoing discussions with tax authorities regarding the resolution of tax matters in the various jurisdictions. Both the outcome of these tax matters and the timing of resolution and/or closure of the tax audits are highly uncertain. However, it is reasonably possible that developments on tax matters in certain tax jurisdictions may result in significant increases or decreases in the company’s total unrecognized tax benefits within the next 12 months. Given the number of years that still remain subject to examination and the number of matters being examined in the various tax jurisdictions, the company is unable to estimate the range of possible adjustments to the balance of unrecognized tax benefits.

On the Consolidated Statement of Income, the company reports interest and penalties related to liabilities for uncertain tax positions as “Income tax expense.” As of December 31, 2011, accruals of $118 for anticipated interest and penalty obligations were included on the Consolidated Balance Sheet, compared with accruals of $225 as of year-end 2010. Income tax expense (benefit) associated with interest and penalties was $(64), $40 and $(20) in 2011, 2010 and 2009, respectively.

Taxes Other Than on Income


	Year ended December 31
	2011		2010		2009

United States
Excise and similar taxes on products and merchandise	$	4,199	$	4,484	$	4,573
Import duties and other levies		4		–		(4	)
Property and other miscellaneous taxes		726		567		584
Payroll taxes		236		219		223
Taxes on production		308		271		135

Total United States		5,473		5,541		5,511

International
Excise and similar taxes on products and merchandise		3,886		4,107		3,536
Import duties and other levies		3,511		6,183		6,550
Property and other miscellaneous taxes		2,354		2,000		1,740
Payroll taxes		148		133		134
Taxes on production		256		227		120

Total International		10,155		12,650		12,080

Total taxes other than on income	$	15,628	$	18,191	$	17,591