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16. INCOME TAXES

ÌýÌýÌýÌýÌýÌýÌýÌýWe use the asset and liability method of accounting for income taxes. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial and tax reporting purposes. We evaluate deferred tax assets to determine whether it is more likely than not that they will be realized. Valuation allowances are reviewed on an individual tax jurisdiction basis to analyze whether there is sufficient positive or negative evidence to support a change in judgment about the realizability of the related deferred tax assets. These conclusions require significant judgment. In evaluating the objective evidence that historical results provide, we consider the cyclicality of businesses and cumulative income or losses during the applicable period. Cumulative losses incurred over the applicable period limits our ability to consider other subjective evidence such as our projections for the future. Changes in expected future income in applicable jurisdictions could affect the realization of deferred tax assets in those jurisdictions. During the six months ended JuneÌý30, 2014 and 2013, on a discrete basis, we released a valuation allowance of $11Ìýmillion and $2Ìýmillion, respectively, on certain net deferred tax assets in Luxembourg as a result of significant changes in estimated future taxable income resulting from increased intercompany debt and, therefore, increased interest income in Luxembourg. During the six months ended JuneÌý30, 2014, we released a valuation allowance of $1Ìýmillion on certain net deferred tax assets in Italy as a result of the restructuring of our European surfactants business which caused our tax expense to be $5Ìýmillion lower than it would have been because we are also able to record a tax benefit for losses incurred during the six months ended JuneÌý30, 2014. During the six months ended JuneÌý30, 2014, our US tax position changed and allowed us to release the valuation allowance on $8Ìýmillion of US foreign tax credits.

ÌýÌýÌýÌýÌýÌýÌýÌýDuring the six months ended JuneÌý30, 2014 and 2013, for unrecognized tax benefits that impact tax expense, we recorded a net increase in unrecognized tax benefits with a corresponding income tax expense of $4Ìýmillion and $2Ìýmillion, respectively. Additional decreases in unrecognized tax benefits were offset by cash settlements or increase in net deferred tax assets and, therefore, did not affect income tax expense.

ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ Corporation

ÌýÌýÌýÌýÌýÌýÌýÌýWe recorded income tax expense of $79Ìýmillion and $24Ìýmillion for the six months ended JuneÌý30, 2014 and 2013, respectively. Our tax expense is significantly affected by the mix of income and losses in the tax jurisdictions in which we operate, as impacted by the presence of valuation allowances in certain tax jurisdictions. Notably, we continue to earn a significant portion of our pre-tax income in the United States with an approximate 35% federal and state blended effective tax rate.

ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ International

ÌýÌýÌýÌýÌýÌýÌýÌýÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ International recorded income tax expense of $80Ìýmillion and $26Ìýmillion for the six months ended JuneÌý30, 2014 and 2013, respectively. Our tax expense is significantly affected by the mix of income and losses in the tax jurisdictions in which we operate, as impacted by the presence of valuation allowances in certain tax jurisdictions. Notably, we continue to earn a significant portion of our pre-tax income in the United States with an approximate 35% federal and state blended effective tax rate.