Note 21—Income Taxes
Our effective tax rate for the three-month period ended June
30, 2020, was negative and is significantly
lower
than the comparative period in 2019 due to a number
of significant transactions, and their
related tax effects,
impacting our $
21
million before-tax income.
The change in the rate was impacted by the gain on disposition
recognized for our Australia-West assets of $
587
million with an associated tax benefit of
$
10
derecognition of $
92
million of deferred tax assets recorded as
income tax expense as a result of this
divestiture, a $
48
million refund from the Alberta Tax & Revenue Administration, and a change
in our U.S.
valuation allowance. For the comparative three-month
period ended June 30, 2019, the effective tax rate was
primarily impacted by a benefit of $
234
million primarily related to the recognition
of U.S. tax basis in our
disposed U.K. subsidiaries.
The effective tax rate for the six-month period ended June
30, 2020 was
7
27
for the same period of 2019.
The effective tax rate was impacted by the items noted
above for the three-month
period ended,
June 30, 2020, as well as a shift in our before-tax
income between higher and lower tax
jurisdictions in 2020.
As a result of the COVID-19 pandemic and the
resulting economic uncertainty, many countries in which we
operate, including Australia, Canada, Norway and
the U.S., have enacted responsive tax legislation.
During
the second quarter,
Norway enacted legislation to accelerate the recovery
of capital expenditures and allow
immediate monetization of tax losses.
As a result,
we have recorded an increase to our net deferred tax
liability of $
120
million and a decrease to our accrued income and
other taxes liability of $
124
Legislation in other jurisdictions did not have a
material impact to ConocoPhillips.
During the three-
and six-month periods ended June 30, 2020,
our valuation allowance decreased by
$
117
million and increased by $
229
million, respectively, compared to a decrease of $
85
191
million for the same periods of 2019.
The change to our U.S. valuation allowance
for both periods relates
primarily to the fair value measurement of our Cenovus
Energy common shares and our expectation of the tax
impact related to incremental capital gains and losses.