National Oilwell Varco 2015 Annual Report Download - page 57

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Table of Contents
Income Taxes
The Company is U.S. registered and is subject to income taxes in the U.S. The Company operates through various subsidiaries in a number of countries
throughout the world. Income taxes have been recorded based upon the tax laws and rates of the countries in which the Company operates and income is
earned.
The Company’s annual tax provision is based on taxable income, statutory rates and tax planning opportunities available in the various jurisdictions in
which it operates. The determination and evaluation of the annual tax provision and tax positions involves the interpretation of the tax laws in the various
jurisdictions in which the Company operates. It requires significant judgment and the use of estimates and assumptions regarding significant future events
such as the amount, timing and character of income, deductions and tax credits. Changes in tax laws, regulations, and treaties, foreign currency exchange
restrictions or the Company’s level of operations or profitability in each jurisdiction could impact the tax liability in any given year. The Company also
operates in many jurisdictions where the tax laws relating to the pricing of transactions between related parties are open to interpretation, which could
potentially result in aggressive tax authorities asserting additional tax liabilities with no offsetting tax recovery in other countries.
The Company maintains liabilities for estimated tax exposures in jurisdictions of operation. The annual tax provision includes the impact of income tax
provisions and benefits for changes to liabilities that the Company considers appropriate, as well as related interest. Tax exposure items primarily include
potential challenges to intercompany pricing and certain operating expenses that may not be deductible in foreign jurisdictions. These exposures are
resolved primarily through the settlement of audits within these tax jurisdictions or by judicial means. The Company is subject to audits by federal, state and
foreign jurisdictions which may result in proposed assessments. The Company believes that an appropriate liability has been established for estimated
exposures under the guidance in ASC Topic 740 “Income Taxes” (“ASC Topic 740”). However, actual results may differ materially from these estimates. The
Company reviews these liabilities quarterly and to the extent audits or other events result in an adjustment to the liability accrued for a prior year, the effect
will be recognized in the period of the event.
The Company currently has recorded valuation allowances that the Company intends to maintain until it is more likely than not the deferred tax assets will
be realized. Income tax expense recorded in the future will be reduced to the extent of decreases in the Company’s valuation allowances. The realization of
remaining deferred tax assets is primarily dependent on future taxable income. Any reduction in future taxable income including but not limited to any future
restructuring activities may require that the Company record an additional valuation allowance against deferred tax assets. An increase in the valuation
allowance would result in additional income tax expense in such period and could have a significant impact on future earnings.
The Company has not provided for deferred taxes on the unremitted earnings of certain subsidiaries that are permanently reinvested. Should the Company
make a distribution from the unremitted earnings of these subsidiaries, the Company may be required to record additional taxes. Unremitted earnings of these
subsidiaries were $8,187 million and $5,874 million at December 31, 2015 and 2014, respectively. The Company makes a determination each period whether
to permanently reinvest these earnings. If, as a result of these reassessments, the Company distributes these earnings in the future, additional tax liabilities
would result, offset by any available foreign tax credits.

In November 2015, the FASB issued ASU 2015-17 “Balance Sheet Classification of Deferred Taxes” (ASU No. 2015-17), which amends existing guidance on
income taxes to require the classification of all deferred tax assets and liabilities as non-current on the balance sheet. ASU No. 2015-17 is effective for fiscal
years beginning after December 15, 2017, with early adoption permitted, and the guidance may be applied either prospectively or retrospectively. The
Company does not expect the adoption of ASU No. 2015-17 will have a material effect on its consolidated financial position and results of operations.
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