Entity information:
Taxes
Income Taxes
Year ended December 31
 
 
2017

 
 
2016

 
2015

Income tax expense (benefit)
 
 
 
 
 
 
U.S. federal
 
 
 
 
 
 
Current
$
(382
)
 
 
$
(623
)
 
$
(817
)
Deferred
(2,561
)
 
 
(1,558
)
 
(580
)
State and local
 
 
 
 
 
 
Current
(97
)
 
 
(15
)
 
(187
)
Deferred
66

 
 
(121
)
 
(109
)
Total United States
(2,974
)
 
 
(2,317
)
 
(1,693
)
International
 
 
 
 
 
 
Current
3,634

 
 
2,744

 
2,997

Deferred
(708
)
 
 
(2,156
)
 
(1,172
)
Total International
2,926

 
 
588

 
1,825

Total income tax expense (benefit)
$
(48
)
 
 
$
(1,729
)
 
$
132


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:
 
2017

 
 
2016

 
2015

Income (loss) before income taxes
 
 
 
 
 
 
   United States
$
(441
)
 
 
$
(4,317
)
 
$
(2,877
)
   International
9,662

 
 
2,157

 
7,719

Total income (loss) before income taxes
9,221

 
 
(2,160
)
 
4,842

Theoretical tax (at U.S. statutory rate of 35%)
3,227

 
 
(756
)
 
1,695

Effect of U.S. tax reform
(2,020
)
 
 
—

 
—

Equity affiliate accounting effect
(1,373
)
 
 
(704
)
 
(1,286
)
Effect of income taxes from international operations*
(130
)
 
 
608

 
72

State and local taxes on income, net of U.S. federal income tax benefit
39

 
 
(44
)
 
(74
)
Prior year tax adjustments, claims and settlements
(39
)
 
 
(349
)
 
84

Tax credits
(199
)
 
 
(188
)
 
(35
)
Other U.S.*
447

 
 
(296
)
 
(324
)
Total income tax expense (benefit)
$
(48
)
 
 
$
(1,729
)
 
$
132

 
 
 
 
 
 
 
Effective income tax rate
(0.5
)%
 
 
80.0
%
 
2.7
%
* Includes one-time tax costs (benefits) associated with changes in uncertain tax positions and valuation allowances.
The 2017 decline in income tax benefit of $1,681, from a benefit of $1,729 in 2016 to a benefit of $48 in 2017, is a result of the year-over-year increase in total income before income tax expense, which is primarily due to effects of higher crude oil prices and gains on asset sales primarily in Indonesia and Canada. In addition, the tax benefit for the year includes a provisional benefit of $2,020 from U.S. tax reform, which primarily reflects the remeasurement of U.S. deferred tax assets and liabilities. The company’s effective tax rate changed from 80 percent in 2016 to (0.5) percent in 2017. The change in effective tax rate is primarily a consequence of the mix effect resulting from the absolute level of earnings or losses and whether they arose in higher or lower tax rate jurisdictions and the 2017 impact of U.S. tax reform.
As noted above, U.S. tax reform resulted in the remeasurement of U.S. deferred tax assets and liabilities. The final impact will not be known until the actual 2017 U.S. tax return is submitted in 2018, and this may result in a change to the provisional amounts that have been recognized.
The company records its deferred taxes on a tax-jurisdiction basis. The reported deferred tax balances are composed of the following:
 
 
 
 
At December 31

 
2017

 
 
2016

Deferred tax liabilities
 
 
 
 
Properties, plant and equipment
$
19,869

 
 
$
25,180

Investments and other
4,796

 
 
5,222

Total deferred tax liabilities
24,665

 
 
30,402

Deferred tax assets
 
 
 
 
Foreign tax credits
(11,872
)
 
 
(10,976
)
Asset retirement obligations/environmental reserves
(5,511
)
 
 
(6,251
)
Employee benefits
(3,129
)
 
 
(4,392
)
Deferred credits
(1,769
)
 
 
(1,950
)
Tax loss carryforwards
(5,463
)
 
 
(6,030
)
Other accrued liabilities
(842
)
 
 
(510
)
Inventory
(336
)
 
 
(374
)
Miscellaneous
(2,415
)
 
 
(3,121
)
Total deferred tax assets
(31,337
)
 
 
(33,604
)
Deferred tax assets valuation allowance
16,574

 
 
16,069

Total deferred taxes, net
$
9,902

 
 
$
12,867


Deferred tax liabilities at the end of 2017 decreased by approximately $5,700 from year-end 2016. The decrease was primarily related to property, plant and equipment temporary differences mainly due to the change in the enacted U.S. tax rate.
Deferred tax assets decreased by approximately $2,300 in 2017. Decreases were mainly due to the change in the enacted U.S. tax rate and primarily impacted asset retirement obligations, employee benefits and tax loss carry forwards. The decrease was partially reduced by an increase in foreign tax credits arising from earnings in high-tax rate international jurisdictions, which was substantially offset by valuation allowances.
The overall valuation allowance relates to deferred tax assets for U.S. 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 2017, the company had tax loss carryforwards of approximately $16,102 and tax credit carryforwards of approximately $1,379, 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 2018 through 2034. U.S. foreign tax credit carryforwards of $11,872 will expire between 2018 and 2027.
At December 31, 2017 and 2016, deferred taxes were classified on the Consolidated Balance Sheet as follows:
 
At December 31
 
 
2017

 
 
2016

Deferred charges and other assets
$
(4,750
)
 
 
$
(4,649
)
Noncurrent deferred income taxes
14,652

 
 
17,516

Total deferred income taxes, net
$
9,902

 
 
$
12,867


Enactment of U.S. tax reform imposed a one-time U.S. federal tax on the deemed repatriation of unremitted earnings indefinitely reinvested abroad, which did not have a material impact on the company’s financial results. The indefinite reinvestment assertion continues to apply for the purpose of determining deferred tax liabilities for U.S. state and foreign withholding tax purposes.
U.S. state and foreign withholding 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 approximately $57,300 at December 31, 2017. This amount represents earnings reinvested as part of the company’s ongoing international business. It is not practicable to estimate the amount of state and foreign taxes that might be payable on the possible remittance of earnings that are intended to be reinvested indefinitely. The company does not anticipate incurring significant additional taxes on remittances of earnings that are not indefinitely reinvested.
Uncertain Income Tax Positions The 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, 2017, 2016 and 2015. 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.
 
2017

 
 
2016

 
2015

Balance at January 1
$
3,031

 
 
$
3,042

 
$
3,552

Foreign currency effects
43

 
 
1

 
(27
)
Additions based on tax positions taken in current year
1,853

 
 
245

 
154

Additions for tax positions taken in prior years
1,166

 
 
181

 
218

Reductions for tax positions taken in prior years
(90
)
 
 
(390
)
 
(678
)
Settlements with taxing authorities in current year
(1,173
)
 
 
(36
)
 
(5
)
Reductions as a result of a lapse of the applicable statute of limitations
(2
)
 
 
(12
)
 
(172
)
Balance at December 31
$
4,828

 
 
$
3,031

 
$
3,042


The increase in unrecognized tax benefits between December 31, 2016 and December 31, 2017 was primarily due to foreign tax credits associated with the deemed repatriation. The increase in unrecognized tax benefits related to these foreign tax credits had no impact on the effective tax rate since the change to the deferred tax asset was fully offset with a change to the valuation allowance. The resolution of numerous issues with various tax jurisdictions during the year also impacted the movement from December 31, 2016 and December 31, 2017.
Approximately 81 percent of the $4,828 of unrecognized tax benefits at December 31, 2017, 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, 2017. For these jurisdictions, the latest years for which income tax examinations had been finalized were as follows: United States – 2011, Nigeria – 2000, Australia – 2006, Angola – 2016 and Kazakhstan – 2007.
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 April 21, 2017, an adverse decision was issued by the full Federal Court on Australia regarding the interest rate to be applied on certain Chevron intercompany loans. On August 14, 2017, an agreement was reached with the Australian Taxation Office to settle this dispute. Management believes the agreed terms to be a reasonable resolution of the dispute, which did not have a material impact on the 2017 results of the company.
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, 2017, accruals of $178 for anticipated interest and penalty obligations were included on the Consolidated Balance Sheet, compared with accruals of $424 as of year-end 2016. Income tax expense (benefit) associated with interest and penalties was $(161), $38 and $195 in 2017, 2016 and 2015, respectively.
Taxes Other Than on Income
Year ended December 31
 
 
2017

 
 
2016

 
2015

United States
 
 
 
 
 
 
Excise and similar taxes on products and merchandise
$
4,398

 
 
$
4,335

 
$
4,426

Import duties and other levies
11

 
 
9

 
4

Property and other miscellaneous taxes
1,824

 
 
1,680

 
1,367

Payroll taxes
241

 
 
252

 
270

Taxes on production
206

 
 
159

 
157

Total United States
6,680

 
 
6,435

 
6,224

International
 
 
 
 
 
 
Excise and similar taxes on products and merchandise
2,791

 
 
2,570

 
2,933

Import duties and other levies
45

 
 
33

 
40

Property and other miscellaneous taxes
2,563

 
 
2,379

 
2,548

Payroll taxes
137

 
 
145

 
161

Taxes on production
115

 
 
106

 
124

Total International
5,651

 
 
5,233

 
5,806

Total taxes other than on income
$
12,331

 
 
$
11,668

 
$
12,030