Income And Other Taxes

12 Months Ended

Dec. 31, 2019

19. Income and Other Taxes

						2019				2018				2017
				U.S.	Non-U.S.		Total	U.S.	Non-U.S.		Total	U.S.	Non-U.S.		Total
								(millions of dollars)
Income tax expense
	Federal and non-U.S.
		Current		(121)		6,171	6,050	459		9,001	9,460	577		6,633	7,210
		Deferred - net		(255)		(420)	(675)	518		(614)	(96)	(9,075)		754	(8,321)
	U.S. tax on non-U.S. operations			89		-	89	42		-	42	17		-	17
			Total federal and non-U.S.	(287)		5,751	5,464	1,019		8,387	9,406	(8,481)		7,387	(1,094)
	State			(182)		-	(182)	126		-	126	(80)		-	(80)
			Total income tax expense	(469)		5,751	5,282	1,145		8,387	9,532	(8,561)		7,387	(1,174)
All other taxes and duties
	Other taxes and duties			3,566		26,959	30,525	3,498		29,165	32,663	3,330		26,774	30,104
	Included in production and
		manufacturing expenses		1,385		811	2,196	1,245		857	2,102	1,107		747	1,854
	Included in SG&A expenses			160		305	465	153		312	465	147		354	501
		Total other taxes and duties		5,111		28,075	33,186	4,896		30,334	35,230	4,584		27,875	32,459
			Total	4,642		33,826	38,468	6,041		38,721	44,762	(3,977)		35,262	31,285

The above provisions for deferred income taxes include net credits of $740 million in 2019 and $289 million in 2018 related to changes in tax laws and rates. For 2017, deferred income tax expense includes a net credit of $5,920 million, reflecting a $5,942 million credit related to U.S. tax reform and $22 million of other changes in tax laws and rates outside of the United States.

Following the December 22, 2017, enactment of the U.S. Tax Cuts and Jobs Act, in accordance with Accounting Standard Codification Topic 740 (Income Taxes) and following the guidance outlined in the SEC Staff Accounting Bulletin No. 118, the Corporation included a $5,942 million credit in its 2017 results, representing a reasonable estimate of the income tax effects of the changes in tax law and tax rate. The Corporation’s results for 2018 include a $291 million tax credit, mainly in the Non-U.S. Upstream, reflecting an updated estimate of the impact of U.S. tax reform including clarifications provided in tax regulations issued by the U.S. Treasury. The Corporation completed its accounting for the enactment-date income tax effects of the U.S. Tax Cuts and Jobs Act in accordance with Accounting Standard Codification Topic 740 (Income Taxes) during 2018.

The reconciliation between income tax expense and a theoretical U.S. tax computed by applying a rate of 21 percent for 2019 and 2018 and 35 percent for 2017 is as follows:

			2019	2018	2017
			(millions of dollars)
Income before income taxes
	United States		(53)	5,200	(754)
	Non-U.S.		20,109	25,753	19,428
		Total	20,056	30,953	18,674
Theoretical tax			4,212	6,500	6,536
Effect of equity method of accounting			(1,143)	(1,545)	(1,883)
Non-U.S. taxes in excess of/(less than) theoretical U.S. tax (1)			2,573	4,626	1,848
Enactment-date effects of U.S. tax reform			-	(291)	(5,942)
Other (2)			(360)	242	(1,733)
		Total income tax expense	5,282	9,532	(1,174)

Effective tax rate calculation
Income taxes			5,282	9,532	(1,174)
ExxonMobil share of equity company income taxes			2,490	3,142	2,228
		Total income taxes	7,772	12,674	1,054
Net income including noncontrolling interests			14,774	21,421	19,848
		Total income before taxes	22,546	34,095	20,902

Effective income tax rate			34%	37%	5%

(1) 2019 includes taxes less than the theoretical U.S. tax of $773 million from Norway operations and the sale of upstream assets, $657 million from a tax rate change in Alberta, Canada, and $268 million from an adjustment to a prior year tax position.

(2) 2017 includes taxes less than the theoretical U.S. tax of $708 million from an exploration tax benefit.

Deferred income taxes reflect the impact of temporary differences between the amount of assets and liabilities recognized for financial reporting purposes and such amounts recognized for tax purposes.

Deferred tax liabilities/(assets) are comprised of the following at December 31:

Tax effects of temporary differences for:		2019	2018
		(millions of dollars)

Property, plant and equipment		36,029	35,745
Other liabilities		7,653	6,516
	Total deferred tax liabilities	43,682	42,261

Pension and other postretirement benefits		(4,712)	(4,115)
Asset retirement obligations		(3,403)	(4,118)
Tax loss carryforwards		(7,404)	(6,321)
Other assets		(7,735)	(5,498)
	Total deferred tax assets	(23,254)	(20,052)

Asset valuation allowances		1,924	1,826
	Net deferred tax liabilities	22,352	24,035

In 2019, asset valuation allowances of $1,924 million increased by $98 million and included net provisions of $113 million and effects of foreign currency translation of $15 million.

Balance sheet classification		2019	2018
		(millions of dollars)

Other assets, including intangibles, net		(3,268)	(3,209)
Deferred income tax liabilities		25,620	27,244
	Net deferred tax liabilities	22,352	24,035

The Corporation’s undistributed earnings from subsidiary companies outside the United States include amounts that have been retained to fund prior and future capital project expenditures. Deferred income taxes have not been recorded for potential future tax obligations, such as foreign withholding tax and state tax, as these undistributed earnings are expected to be indefinitely reinvested for the foreseeable future. As of December 31, 2019, it is not practicable to estimate the unrecognized deferred tax liability. However, unrecognized deferred taxes on remittance of these funds are not expected to be material.Unrecognized Tax Benefits. The Corporation is subject to income taxation in many jurisdictions around the world. Unrecognized tax benefits reflect the difference between positions taken or expected to be taken on income tax returns and the amounts recognized in the financial statements. The following table summarizes the movement in unrecognized tax benefits:

Gross unrecognized tax benefits		2019	2018	2017
		(millions of dollars)

Balance at January 1		9,174	8,783	9,468
	Additions based on current year's tax positions	287	375	522
	Additions for prior years' tax positions	120	240	523
	Reductions for prior years' tax positions	(97)	(125)	(865)
	Reductions due to lapse of the statute of limitations	(279)	(5)	(113)
	Settlements with tax authorities	(538)	(68)	(782)
	Foreign exchange effects/other	177	(26)	30
Balance at December 31		8,844	9,174	8,783

The gross unrecognized tax benefit balances shown above are predominantly related to tax positions that would reduce the Corporation’s effective tax rate if the positions are favorably resolved. Unfavorable resolution of these tax positions generally would not increase the effective tax rate. The 2019, 2018 and 2017 changes in unrecognized tax benefits did not have a material effect on the Corporation’s net income.

Resolution of these tax positions through negotiations with the relevant tax authorities or through litigation will take many years to complete. It is difficult to predict the timing of resolution for tax positions since such timing is not entirely within the control of the Corporation. In the United States, the Corporation has various ongoing U.S. federal income tax positions at issue with the Internal Revenue Service (IRS) for tax years beginning in 2006. The Corporation filed a refund suit for tax years 2006-2009 in U.S. federal district court with respect to the positions at issue for those years. These positions are reflected in the unrecognized tax benefits table above. On February 24, 2020, the Corporation received an adverse ruling on this suit and is assessing the ruling. Unfavorable resolution of all positions at issue with the IRS would not have a materially adverse effect on the Corporation’s net income or liquidity. The IRS has asserted penalties associated with several of those positions. The Corporation has not recognized the penalties as an expense because the Corporation does not expect the penalties to be sustained under applicable law.

It is reasonably possible that the total amount of unrecognized tax benefits could increase or decrease by 10 percent in the next 12 months with no material impact on the Corporation's net income.

The following table summarizes the tax years that remain subject to examination by major tax jurisdiction:

Country of Operation	Open Tax Years
Abu Dhabi		2018	-	2019
Angola		2018	-	2019
Australia		2010	-	2019
Belgium		2017	-	2019
Canada		2000	-	2019
Equatorial Guinea		2007	-	2019
Indonesia		2007	-	2019
Iraq		2014	-	2019
Malaysia		2011	-	2019
Nigeria		2006	-	2019
Norway		2007	-	2019
Papua New Guinea		2008	-	2019
Russia		2017	-	2019
United Kingdom		2015	-	2019
United States		2006	-	2019

The Corporation classifies interest on income tax-related balances as interest expense or interest income and classifies tax-related penalties as operating expense.

The Corporation incurred $0 million, $3 million and $36 million in interest expense on income tax reserves in 2019, 2018 and 2017, respectively. The related interest payable balances were $71 million and $169 million at December 31, 2019, and 2018, respectively.