Halliburton 2011 Annual Report Download - page 76

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We determine deferred taxes separately for each tax-paying component (an entity or a group of
entities that is consolidated for tax purposes) in each tax jurisdiction. That determination includes the
following procedures:
- identifying the types and amounts of existing temporary differences;
- measuring the total deferred tax liability for taxable temporary differences using the
applicable tax rate;
- measuring the total deferred tax asset for deductible temporary differences and operating loss
carryforwards using the applicable tax rate;
- measuring the deferred tax assets for each type of tax credit carryforward; and
- reducing the deferred tax assets by a valuation allowance if, based on available evidence, it is
more likely than not that some portion or all of the deferred tax assets will not be realized.
Our methodology for recording income taxes requires a significant amount of judgment in the use
of assumptions and estimates. Additionally, we use forecasts of certain tax elements, such as taxable
income and foreign tax credit utilization, as well as evaluate the feasibility of implementing tax planning
strategies. Given the inherent uncertainty involved with the use of such variables, there can be significant
variation between anticipated and actual results. Unforeseen events may significantly impact these
variables, and changes to these variables could have a material impact on our income tax accounts related
to both continuing and discontinued operations.
We have operations in approximately 80 countries other than the United States. Consequently, we
are subject to the jurisdiction of a significant number of taxing authorities. No single jurisdiction has a
disproportionately low tax rate. The income earned in these various jurisdictions is taxed on differing bases,
including income actually earned, income deemed earned, and revenue-based tax withholding. The final
determination of our income tax liabilities involves the interpretation of local tax laws, tax treaties, and
related authorities in each jurisdiction. Changes in the operating environment, including changes in tax law
and currency/repatriation controls, could impact the determination of our income tax liabilities for a tax
year.
Tax filings of our subsidiaries, unconsolidated affiliates, and related entities are routinely
examined in the normal course of business by tax authorities. These examinations may result in
assessments of additional taxes, which we work to resolve with the tax authorities and through the judicial
process. Predicting the outcome of disputed assessments involves some uncertainty. Factors such as the
availability of settlement procedures, willingness of tax authorities to negotiate, and the operation and
impartiality of judicial systems vary across the different tax jurisdictions and may significantly influence
the ultimate outcome. We review the facts for each assessment, and then utilize assumptions and estimates
to determine the most likely outcome and provide taxes, interest, and penalties as needed based on this
outcome. We provide for uncertain tax positions pursuant to current accounting standards, which prescribe
a minimum recognition threshold and measurement methodology that a tax position taken or expected to be
taken in a tax return is required to meet before being recognized in the financial statements. The standards
also provide guidance for derecognition classification, interest and penalties, accounting in interim periods,
disclosure, and transition.