| Note 20—Income Tax | |||||||
| Income taxes charged to income from continuing operations were: | |||||||
| Millions of Dollars | |||||||
| 2013 | 2012 | 2011 | |||||
| Income Taxes | |||||||
| Federal | |||||||
| Current | $ | 724 | 63 | 1,066 | |||
| Deferred | 811 | 624 | 285 | ||||
| Foreign | |||||||
| Current | 4,249 | 6,255 | 6,400 | ||||
| Deferred | 504 | 744 | 48 | ||||
| State and local | |||||||
| Current | 220 | 231 | 308 | ||||
| Deferred | (99) | 25 | 101 | ||||
| $ | 6,409 | 7,942 | 8,208 | ||||
| Deferred income taxes reflect the net tax effect of temporary differences between the carrying amounts of | ||||
| assets and liabilities for financial reporting purposes and the amounts used for tax purposes. Major | ||||
| components of deferred tax liabilities and assets at December 31 were: | ||||
| Millions of Dollars | ||||
| 2013 | 2012 | |||
| Deferred Tax Liabilities | ||||
| PP&E and intangibles | $ | 20,079 | 18,826 | |
| Investment in joint ventures | 943 | 872 | ||
| Inventory | 86 | 76 | ||
| Partnership income deferral | 168 | 343 | ||
| Other | 724 | 793 | ||
| Total deferred tax liabilities | 22,000 | 20,910 | ||
| Deferred Tax Assets | ||||
| Benefit plan accruals | 1,274 | 1,760 | ||
| Asset retirement obligations and accrued environmental costs | 4,483 | 3,954 | ||
| Deferred state income tax | 49 | 77 | ||
| Other financial accruals and deferrals | 297 | 544 | ||
| Loss and credit carryforwards | 1,487 | 2,062 | ||
| Other | 267 | 398 | ||
| Total deferred tax assets | 7,857 | 8,795 | ||
| Less: valuation allowance | (969) | (1,345) | ||
| Net deferred tax assets | 6,888 | 7,450 | ||
| Net deferred tax liabilities | $ | 15,112 | 13,460 | |
Current assets, long-term assets, current liabilities and long-term liabilities included deferred taxes of $703 million, $171 million, $766 million and $15,220 million, respectively, at December 31, 2013, and $461 million, $222 million, $958 million and $13,185 million, respectively, at December 31, 2012.
We have loss and credit carryovers in multiple taxing jurisdictions. These attributes generally expire between 2015 and 2034 with some carryovers having indefinite carryforward periods.
Valuation allowances have been established to reduce deferred tax assets to an amount that will, more likely than not, be realized. During 2013, valuation allowances decreased a total of $376 million. This primarily relates to a net utilization of loss carryforwards, a utilization of U.S. foreign tax credit carryforwards and relinquishment of assets. Based on our historical taxable income, expectations for the future, and available tax-planning strategies, management expects remaining net deferred tax assets will be realized as offsets to reversing deferred tax liabilities and as offsets to the tax consequences of future taxable income.
At December 31, 2013 and 2012, income considered to be permanently reinvested in certain foreign subsidiaries and foreign corporate joint ventures totaled approximately $3,222 million and $2,286 million, respectively. Deferred income taxes have not been provided on this income, as we do not plan to initiate any action that would require the payment of income taxes. It is not practicable to estimate the amount of additional tax that might be payable on this foreign income if distributed.
| The following table shows a reconciliation of the beginning and ending unrecognized tax benefits for 2013, | ||||||
| 2012 and 2011: | ||||||
| Millions of Dollars | ||||||
| 2013 | 2012 | 2011 | ||||
| Balance at January 1 | $ | 872 | 1,071 | 1,125 | ||
| Additions based on tax positions related to the current year | 52 | 98 | 46 | |||
| Additions for tax positions of prior years | 30 | 48 | 145 | |||
| Reductions for tax positions of prior years | (251) | (206) | (35) | |||
| Settlements | (48) | (108) | (206) | |||
| Lapse of statute | - | (31) | (4) | |||
| Balance at December 31 | $ | 655 | 872 | 1,071 | ||
Included in the balance of unrecognized tax benefits for 2013, 2012 and 2011 were $440 million, $650 million and $815 million, respectively, which, if recognized, would impact our effective tax rate.
At December 31, 2013, 2012 and 2011, accrued liabilities for interest and penalties totaled $120 million, $129 million and $141 million, respectively, net of accrued income taxes. Interest and penalties resulted in a benefit to earnings in 2013 of $9 million, a benefit to earnings in 2012 of $9 million, and a charge to earnings in 2011 of $10 million.
We and our subsidiaries file tax returns in the U.S. federal jurisdiction and in many foreign and state jurisdictions. Audits in major jurisdictions are generally complete as follows: United Kingdom (2010), Canada (2006), United States (2008) and Norway (2012). Issues in dispute for audited years and audits for subsequent years are ongoing and in various stages of completion in the many jurisdictions in which we operate around the world. As a consequence, the balance in unrecognized tax benefits can be expected to fluctuate from period to period. It is reasonably possible such changes could be significant when compared with our total unrecognized tax benefits, but the amount of change is not estimable.
| The amounts of U.S. and foreign income from continuing operations before income taxes, with a reconciliation | ||||||||||||||
| of tax at the federal statutory rate with the provision for income taxes, were: | ||||||||||||||
| Percent of | ||||||||||||||
| Millions of Dollars | Pretax Income | |||||||||||||
| 2013 | 2012 | 2011 | 2013 | 2012 | 2011 | |||||||||
| Income before income taxes | ||||||||||||||
| from continuing operations | ||||||||||||||
| United States | $ | 5,046 | 4,070 | 4,762 | 34.9 | % | 26.4 | 30.9 | ||||||
| Foreign | 9,400 | 11,353 | 10,634 | 65.1 | 73.6 | 69.1 | ||||||||
| $ | 14,446 | 15,423 | 15,396 | 100.0 | % | 100.0 | 100.0 | |||||||
| Federal statutory income tax | $ | 5,056 | 5,398 | 5,389 | 35.0 | % | 35.0 | 35.0 | ||||||
| Foreign taxes in excess of federal | ||||||||||||||
| statutory rate | 1,389 | 2,878 | 2,658 | 9.6 | 18.6 | 17.3 | ||||||||
| Capital loss benefit | (79) | (461) | - | (0.5) | (3.0) | - | ||||||||
| Federal manufacturing deduction | (35) | (52) | (73) | (0.2) | (0.3) | (0.5) | ||||||||
| State income tax | 79 | 166 | 266 | 0.5 | 1.1 | 1.7 | ||||||||
| Other | (1) | 13 | (32) | - | 0.1 | (0.2) | ||||||||
| $ | 6,409 | 7,942 | 8,208 | 44.4 | % | 51.5 | 53.3 | |||||||
The change in the effective tax rate from 2012 to 2013 was primarily due to lower income in high tax jurisdictions in 2013. The change in the effective tax rate from 2011 to 2012 was primarily due to the effect of the Company's asset disposition program, partially offset by higher income in high tax jurisdictions in 2012.
Statutory tax rate changes did not have a significant impact on our income tax expense in 2013.
In the United Kingdom, legislation was enacted on July 17, 2012, restricting corporate tax relief on decommissioning costs to 50 percent, retroactively effective from March 21, 2012. Our 2012 earnings were reduced by $192 million due to remeasurement of deferred tax balances as of the effective date.
In the United Kingdom, legislation was enacted on July 19, 2011, which increased the supplementary corporate tax rate applicable to U.K. Upstream activity from 20 to 32 percent, retroactively effective from March 24, 2011. This resulted in the overall U.K. corporate rate increasing from 50 percent to 62 percent. The enactment resulted in increased U.K. corporate income tax expense of $316 million in 2011. This is comprised of $106 million due to remeasurement of U.K. deferred tax liabilities, and $210 million to reflect the new rate from March 24, 2011, through December 31, 2011.