ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾

18. INCOME TAXES

ÌýÌýÌýÌýÌýÌýÌýÌýThe following is a summary of U.S. and non-U.S. provisions for current and deferred income taxes (dollars in millions):

ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ Corporation

ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ International

ÌýÌýÌýÌýÌýÌýÌýÌýThe following schedule reconciles the differences between the U.S. federal income taxes at the U.S. statutory rate to our provision (benefit) for income taxes (dollars in millions):

ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ Corporation

ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ International

ÌýÌýÌýÌýÌýÌýÌýÌýOn SeptemberÌý8, 2009, we announced the closure of our Australia styrenics operations. U.S. tax law, under our relevant facts, provides for a deduction on investments that are "worthless" for U.S. tax purposes. Therefore, during 2012, 2011, and 2010, we recorded tax benefits of $3Ìýmillion, $2Ìýmillion and $28Ìýmillion, respectively, in discontinued operations related to the closure of and the cumulative U.S. investments in our Australia styrenics business.

ÌýÌýÌýÌýÌýÌýÌýÌýWe operate in 42 non-U.S. tax jurisdictions, and there is no specific country where our operations earn a predominant amount of our off-shore earnings. While the vast majority of these countries have income tax rates that are lower than the U.S. statutory rate, the operating losses we incur in some of our non-U.S. jurisdictions mitigate the amount of tax rate benefit we would otherwise realize from these tax rate differentials.

ÌýÌýÌýÌýÌýÌýÌýÌýDuring 2012, we were granted a tax holiday for the period from JanuaryÌý1, 2012 through DecemberÌý31, 2016 with respect to certain income from products manufactured by our Pigments segment 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.

ÌýÌýÌýÌýÌýÌýÌýÌýThe components of income from continuing operations before income taxes were as follows (dollars in millions):

ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ Corporation

ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ International

ÌýÌýÌýÌýÌýÌýÌýÌýComponents of deferred income tax assets and liabilities were as follows (dollars in millions):

ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ Corporation

ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ International

ÌýÌýÌýÌýÌýÌýÌýÌýWe have net operating loss carryforwards ("NOLs") of $2,893Ìýmillion in various non-U.S. jurisdictions. While the majority of the non-U.S. NOLs have no expiration date, $1,327Ìýmillion have a limited life (of which $1,127Ìýmillion are subject to a valuation allowance) and $17Ìýmillion are scheduled to expire in 2013 (all of which are subject to a valuation allowance). We had no NOLs expire unused in 2012.

ÌýÌýÌýÌýÌýÌýÌýÌýIncluded in the $2,893Ìýmillion of non-U.S. NOLs is $860Ìýmillion attributable to our Luxembourg entities. As of DecemberÌý31, 2012, there is a valuation allowance of $222Ìýmillion against these net tax-effected NOLs of $247Ìýmillion. Due to the uncertainty surrounding the realization of the benefits of these losses, we have reduced substantially all of the related deferred tax asset with a valuation allowance.

ÌýÌýÌýÌýÌýÌýÌýÌýValuation allowances are reviewed each period on a tax jurisdiction by 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 period limits our ability to consider other subjective evidence such as our projections for the future.

ÌýÌýÌýÌýÌýÌýÌýÌýDuring 2012, we released valuation allowances of $24Ìýmillion on a portion of our net deferred tax assets in China, in certain U.S. states and in Luxembourg, and we established valuation allowances of $23Ìýmillion on certain net deferred tax assets in the U.S., India and Indonesia.

ÌýÌýÌýÌýÌýÌýÌýÌýPrimarily as a result of a cumulative history of operating profits, we released certain valuation allowances in China and in certain U.S. state tax jurisdictions of $9Ìýmillion and $2Ìýmillion, respectively. Additionally, a partial valuation allowance release was recognized in Luxembourg for $12Ìýmillion as a result of significant changes in estimated future taxable income resulting from changed circumstances.

ÌýÌýÌýÌýÌýÌýÌýÌýDuring 2012, we amended certain prior year U.S. federal income tax filings and claimed $31Ìýmillion of additional U.S. foreign tax credits. Due to uncertainty regarding our ability to actually utilize these credits before they expire in 2015, we established a partial valuation allowance of $21Ìýmillion against the incremental deferred tax asset.

ÌýÌýÌýÌýÌýÌýÌýÌýDuring 2011, we released valuation allowances of $27Ìýmillion on certain net deferred tax assets in France and Spain (as a result of recent profitability in our Pigments business), Singapore (as a result of a cumulative history of operating profits), Australia (as a result of discontinuing the unprofitable portion of the business operations in that country) and Luxembourg (as a result of restructuring our internal treasury activities such that a portion of the deferred tax assets is more likely than not to be realized). During 2010, we released valuation allowances of $20Ìýmillion on certain net deferred tax assets, principally in Australia (as a result of discontinuing the unprofitable portion of the business operations in that country) and Luxembourg (as a result of restructuring our internal treasury activities such that a portion of the deferred tax assets is more likely than not to be realized).

ÌýÌýÌýÌýÌýÌýÌýÌýUncertainties regarding expected future income in certain jurisdictions could affect the realization of deferred tax assets in those jurisdictions and result in additional valuation allowances in future periods.

ÌýÌýÌýÌýÌýÌýÌýÌýThe following is a summary of changes in the valuation allowance (dollars in millions):

ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ Corporation

ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ International

ÌýÌýÌýÌýÌýÌýÌýÌýThe following is a reconciliation of our unrecognized tax benefits (dollars in millions):

ÌýÌýÌýÌýÌýÌýÌýÌýAs of DecemberÌý31, 2012 and 2011, the amount of unrecognized tax benefits which, if recognized, would affect the effective tax rate is $37Ìýmillion and $31Ìýmillion, respectively.

ÌýÌýÌýÌýÌýÌýÌýÌýIn accordance with our accounting policy, we continue to recognize interest and penalties accrued related to unrecognized tax benefits in income tax expense.

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ÌýÌýÌýÌýÌýÌýÌýÌýWe conduct business globally and, as a result, we file income tax returns in U.S. federal, various U.S. state and various non-U.S. jurisdictions. The following table summarizes the tax years that remain subject to examination by major tax jurisdictions:

ÌýÌýÌýÌýÌýÌýÌýÌýCertain of our U.S. and non-U.S. income tax returns are currently under various stages of audit by applicable tax authorities and the amounts ultimately agreed upon in resolution of the issues raised may differ materially from the amounts accrued.

ÌýÌýÌýÌýÌýÌýÌýÌýWe estimate that it is reasonably possible that certain of our non-U.S. unrecognized tax benefits could change within 12Ìýmonths of the reporting date with a resulting decrease in the unrecognized tax benefits within a reasonably possible range of $1Ìýmillion to $19Ìýmillion. For the 12-month period from the reporting date, we would expect that a substantial portion of the decrease in our unrecognized tax benefits would result in no corresponding benefit to our income tax expense.

ÌýÌýÌýÌýÌýÌýÌýÌýDuring 2012, we concluded and settled tax examinations in the U.S. (both federal and various states) and various non-U.S. jurisdictions including, but not limited to, Hong Kong, Thailand and Japan. During 2011, we concluded and effectively settled tax examinations in the U.S. (both federal and various states) and various non-U.S. jurisdictions including, but not limited to, Australia, China, France and Germany. During 2010, we concluded and settled tax examinations in the U.S. (both federal and various states) and various non-U.S. jurisdictions including, but not limited to, Belgium, Spain, Indonesia, Thailand and the U.K.

ÌýÌýÌýÌýÌýÌýÌýÌýFor non-U.S. entities that were not treated as branches for U.S. tax purposes, we do not provide for income taxes on the undistributed earnings of these subsidiaries as earnings are reinvested and, in the opinion of management, will continue to be reinvested indefinitely. The undistributed earnings of foreign subsidiaries that are deemed to be permanently invested were approximately $215Ìýmillion at DecemberÌý31, 2012. It is not practicable to determine the unrecognized deferred tax liability on those earnings. We have material inter-company debt obligations owed by our non-U.S. subsidiaries to the U.S. We do not intend to repatriate earnings to the U.S. via dividend based on estimates of future domestic cash generation and our ability to return cash to the U.S. through payments of inter-company debt owned by our non-U.S. subsidiaries to the U.S. To the extent that cash is required in the U.S., rather than repatriate earnings to the U.S. via dividend, we expect to utilize our inter-company debt. If any earnings were repatriated via dividend, we would need to accrue and pay taxes on the distributions.