Halliburton Company

Income Taxes

The components of the benefit (provision) for income taxes on continuing operations were:



	Year Ended December 31
Millions of dollars	2017			2016			2015
Current income taxes:
Federal	$	40		$	737		$	635
Foreign	(423		)	(415		)	(636		)
State	(14		)	35			51
Total current	(397		)	357			50
Deferred income taxes:
Federal	(678		)	1,343			(18		)
Foreign	(31		)	77			262
State	(25		)	81			(20		)
Total deferred	(734		)	1,501			224
Income tax benefit (provision)	$	(1,131	)	$	1,858		$	274

The United States and foreign components of income (loss) from continuing operations before income taxes were as follows:



	Year Ended December 31
Millions of dollars	2017			2016			2015
United States	$	694		$	(6,636	)	$	(1,560	)
Foreign	(12		)	(989		)	624
Total	$	682		$	(7,625	)	$	(936	)

Reconciliations between the actual provision for income taxes on continuing operations and that computed by applying the United States statutory rate to income (loss) from continuing operations before income taxes were as follows:



	Year Ended December 31
	2017		2016		2015
United States statutory rate	35.0	%	35.0	%	35.0	%
Impact of U.S. tax reform	113.0		—		—
Venezuela receivables adjustment	36.6		—		(7.5	)
Impact of foreign income taxed at different rates	(18.3	)	(3.2	)	17.0
Valuation allowance against tax assets	(6.2	)	(2.1	)	(8.3	)
Undistributed foreign earnings	3.8		(5.1	)	—
Adjustments of prior year taxes	(2.3	)	0.2		1.3
State income taxes	1.7		1.0		2.0
Domestic manufacturing deduction	—		(1.3	)	—
Non-deductible acquisition costs	—		0.6		(4.5	)
Other items, net	2.5		(0.7	)	(5.7	)
Total effective tax rate on continuing operations	165.8	%	24.4	%	29.3	%

Our effective tax rate on continuing operations was 165.8% for 2017, 24.4% for 2016 and 29.3% for 2015. For the year ended December 31, 2017, we had the following significant items impacting our effective tax rate:


–	we recorded an aggregate charge of $647 million on Venezuela receivables for which we are not recognizing a corresponding tax benefit. See Note 3 to the consolidated financial statements for further information;


–	we recorded $770 million of tax expenses associated with United States tax reform, as described below; and


–	we recognized income in our foreign operations in which the corresponding tax expenses are applied at lower statutory rates in certain jurisdictions.

On December 22, 2017, the President of the United States signed into law what is informally called the Tax Cuts and Jobs Act of 2017 (the “Act”), a comprehensive U.S. tax reform package that, effective January 1, 2018, among other things, lowered the corporate income tax rate from 35% to 21% and moved the country towards a territorial tax system with a one-time mandatory tax on previously deferred foreign earnings of foreign subsidiaries. Under the accounting rules, companies are required to recognize the effects of changes in tax laws and tax rates on deferred tax assets and liabilities in the period in which the new legislation is enacted. The effects of the Act on Halliburton include three major categories: (i) recognition of liabilities for taxes on mandatory deemed repatriation, (ii) remeasurement of deferred taxes and (iii) reassessment of the realizability of deferred tax assets. As described further below, we recorded a total provision to income taxes of $770 million in the year ended December 31, 2017. As we do not have all the necessary information to analyze all income tax effects of the Act, this is a provisional amount which we believe represents a reasonable estimate of the accounting implications of this tax reform. We will continue to evaluate the Act and adjust the provisional amounts as additional information is obtained. The ultimate impact of tax reform may differ from our provisional amounts due to changes in our interpretations and assumptions, as well as additional regulatory guidance that may be issued.

We expect to complete our detailed analysis no later than the fourth quarter of 2018. Below is a brief description of each of the three categories of effects from U.S. tax reform and its impact on us:

(i)

Liability for taxes due on mandatory deemed repatriation - under the Act, a company’s foreign earnings accumulated under the legacy tax laws are deemed to be repatriated into the United States. We recorded a provisional estimate of federal and state tax related to deemed repatriation in the amount of approximately $305 million. However, we had an existing United States tax liability associated with foreign earnings that were not permanently reinvested outside the United States in the amount of $435 million. It is now expected that these foreign earnings can be repatriated to the United States without any additional United States tax above the amount accrued related to the mandatory deemed repatriation. Accordingly, we released the entire $435 million liability. This $435 million release combined with the provisional amount accrued related to the mandatory deemed repatriation of $305 million resulted in us recognizing a net benefit of approximately $130 million for this item. We are currently analyzing the potential tax liabilities attributable to any additional repatriation, but we have yet to determine whether we plan to change our prior assertion and repatriate any additional earnings. Accordingly, we have not recorded any deferred taxes attributable to other investments in our foreign subsidiaries. We will record the tax effects of any change in our prior assertion in the period that we complete our analysis and are able to make a reasonable estimate, and disclose any unrecognized deferred tax liability for temporary differences related to our foreign investments, if practicable.


(ii)	Remeasurement of deferred taxes - under the Act, the U.S. corporate income tax rate was reduced from 35% to 21%. Accordingly, we remeasured our U.S. deferred tax assets as of December 31, 2017 to a 21% rate, resulting in a tax expense of $283 million.

(iii)

Reassessment of the realizability of deferred tax assets - under the Act, many of the foreign tax credit utilization rules were changed that required us to reassess the realizability of our foreign tax credit deferred tax asset. After review, it was determined that under the new U.S. foreign tax credit rules we would not ultimately realize the full benefit associated with our foreign tax credits at December 31, 2017. Accordingly, we recognized a provisional estimate of a valuation allowance related to our foreign tax credits in the amount of $575 million. In addition, we had recorded foreign tax credit benefits associated with a liability related to uncertain tax benefits recorded on foreign branches of our U.S. subsidiaries. We determined that these foreign tax credits would also ultimately become unrealizable. Accordingly, a provision of approximately $40 million was recognized.

The primary components of our deferred tax assets and liabilities were as follows:



	December 31
Millions of dollars	2017		2016
Gross deferred tax assets:
Net operating loss carryforwards	$	1,370	$	1,647
Foreign tax credit carryforwards	828		648
Employee compensation and benefits	263		352
Accrued liabilities	97		325
Other	416		536
Total gross deferred tax assets	2,974		3,508
Gross deferred tax liabilities:
Depreciation and amortization	315		585
Undistributed foreign earnings	242		406
Other	56		145
Total gross deferred tax liabilities	613		1,136
Valuation allowances	1,173		453
Net deferred income tax asset	$	1,188	$	1,919

At December 31, 2017, we had $1.4 billion of domestic and foreign tax-effected net operating loss carryforwards. The ultimate realization of these deferred tax assets depends on the ability to generate sufficient taxable income in the appropriate taxing jurisdiction. $161 million of the net operating loss carryforwards will expire after taxable years ended from 2018 through 2022, $160 million will expire after taxable years ended from 2023 through 2027, and $693 million will expire after taxable years ended from 2028 through 2037. The remaining balance will not expire. Additionally, we had $911 million of foreign tax credit carryforwards that will expire from 2023 through 2027, which are offset by foreign branch deferred activity reflected in the above table, along with $102 million of research and development tax credit carryforwards that will expire from 2028 through 2037.

The following table presents a rollforward of our unrecognized tax benefits and associated interest and penalties.



Millions of dollars	Unrecognized Tax Benefits				Interest and Penalties
Balance at January 1, 2015	$	314			$	56
Change in prior year tax positions	(33		)		7
Change in current year tax positions	62				1
Cash settlements with taxing authorities	(16		)		(15		)
Lapse of statute of limitations	(5		)		(2		)
Balance at December 31, 2015	$	322			$	47
Change in prior year tax positions	44				20
Change in current year tax positions	129				3
Cash settlements with taxing authorities	(62		)		(8		)
Lapse of statute of limitations	(6		)		(1		)
Balance at December 31, 2016	$	427		(a)	$	61
Change in prior year tax positions	(108		)		—
Change in current year tax positions	24				2
Cash settlements with taxing authorities	(6		)		—
Lapse of statute of limitations	(4		)		(3		)
Balance at December 31, 2017	$	333		(a)(b)	$	60

(a)

Includes $9 million as of December 31, 2017 and $84 million as of December 31, 2016 in foreign unrecognized tax benefits that would give rise to a United States tax credit. As of December 31, 2017 and December 31, 2016, approximately $319 million and $257 million, respectively, of unrecognized tax benefits would positively impact the effective tax rate and be recognized as additional tax benefits in our statement of operations if resolved in our favor.


(b)	Includes $23 million that could be resolved within the next 12 months.

We file income tax returns in the United States federal jurisdiction and in various states and foreign jurisdictions. In most cases, we are no longer subject to state, local, or non-United States income tax examination by tax authorities for years before 2009. Tax filings of our subsidiaries, unconsolidated affiliates and related entities are routinely examined in the normal course of business by tax authorities. Currently, our United States federal tax filings for the tax years 2012 through 2015 are under review by the Internal Revenue Service, and the appeal process is closed for the tax years 2010 through 2011.