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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 three months ended MarchÌý31, 2013, on a discrete basis, we released a valuation allowance of $1Ìýmillion on certain net deferred tax assets in Luxembourg. During the three months ended MarchÌý31, 2012, we recorded a net $1Ìýmillion expense for changes in valuation allowance related to certain net deferred assets in Guatemala, Indonesia and China, with no change greater than $2Ìýmillion.

ÌýÌýÌýÌýÌýÌýÌýÌýDuring the three months ended MarchÌý31, 2013 and 2012, we recorded a net increase in unrecognized tax benefits with a corresponding income tax expense of $1Ìýmillion for each period, resulting from the settlement of tax audits, the effective settlement of certain tax positions and the expiration of statutes of limitations, net of additions.

ÌýÌýÌýÌýÌýÌýÌýÌýDuring the three months ended MarchÌý31, 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 three months ended MarchÌý31, 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.

ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ Corporation

ÌýÌýÌýÌýÌýÌýÌýÌýWe recorded income tax benefit of $20Ìýmillion and income tax expense of $60Ìýmillion for the three months ended MarchÌý31, 2013 and 2012, 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. Our 2013 effective tax rate is significantly impacted by anticipated losses in tax jurisdictions where we have a full valuation allowance.

ÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ International

ÌýÌýÌýÌýÌýÌýÌýÌýÀÖÌìÌÃfun88(ÖйúÇø)¹Ù·½ÍøÕ¾ International recorded income tax benefit of $18Ìýmillion and income tax expense of $61Ìýmillion for the three months ended MarchÌý31, 2013 and 2012, 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. Our 2013 effective tax rate is significantly impacted by anticipated losses in tax jurisdictions where we have a full valuation allowance.