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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 a 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 for each jurisdiction. 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 nine months ended SeptemberÌý30, 2012, on a discrete basis, we changed our judgment about certain valuation allowances, primarily related to operations of our Textile Effects segment, resulting in a net $1Ìýmillion benefit for changes in valuation allowance related to certain net deferred assets in Guatemala, Indonesia, and China. In addition, due to changes in certain intercompany operations, we increased our estimated future taxable income in Luxembourg and released valuation allowances of $12Ìýmillion and $8Ìýmillion on certain net deferred assets during the nine months ended SeptemberÌý30, 2012 and 2011, respectively.
ÌýÌýÌýÌýÌýÌýÌýÌýDuring the nine months ended SeptemberÌý30, 2012, we recorded a net increase in unrecognized tax benefits with a corresponding income tax expense of $4Ìýmillion, and during the nine months ended SeptemberÌý30, 2011, we recorded no net change in unrecognized tax benefits.
ÌýÌýÌýÌýÌýÌýÌýÌýDuring the nine months ended SeptemberÌý30, 2012, we were granted a tax holiday for the period from JanuaryÌý1, 2012 through DecemberÌý31, 2016 with respect to certain income from Pigments products manufactured in Malaysia. We are required to make certain investments in order to enjoy the benefits of the tax holiday and we intend to make these investments. During the nine months ended SeptemberÌý30, 2012, we recorded a discrete benefit of $3Ìýmillion from de-recognition of a net deferred tax liability that will reverse during the holiday period. The amount of tax benefit to be realized from the tax holiday is directly dependent on the amount of future pre-tax income generated. We expect that the effects of the tax holiday will not be material to our provision for income taxes.
ÌýÌýÌýÌýÌýÌýÌýÌýDuring the nine months ended SeptemberÌý30, 2012, we recorded approximately $12Ìýmillion of tax benefits on the approximately $50Ìýmillion of restructuring, impairment and plant closing costs attributable to the significant restructuring of our Polyurethanes and Textile Effects segments. During the nine months ended SeptemberÌý30, 2011, we recorded approximately $2Ìýmillion of tax benefits on the approximately $160Ìýmillion of restructuring, impairment and plant closing costs attributable to the significant restructuring of our Textile Effects and Advanced Materials segments. The majority of these 2011 restructuring expenses relate to operations in Switzerland where we have a full valuation allowance on our net deferred tax assets.
ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ Corporation
ÌýÌýÌýÌýÌýÌýÌýÌýExcluding the tax effects resulting from the net valuation allowance changes and restructuring costs, the net unrecognized tax benefit items and the Malaysia tax holiday discussed above, we recorded income tax expense of $210Ìýmillion and $121Ìýmillion for the nine months ended SeptemberÌý30, 2012 and 2011, respectively. Our tax expense is 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.
ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ International
ÌýÌýÌýÌýÌýÌýÌýÌýExcluding the tax effects resulting from the net valuation allowance changes and restructuring costs, the net unrecognized tax benefit items and the Malaysia tax holiday discussed above, ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ International recorded income tax expense of $212Ìýmillion and $121Ìýmillion for the nine months ended SeptemberÌý30, 2012 and 2011, respectively. Our tax expense is 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.
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