16. INCOME TAXES

        We 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 an individual 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. 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 September 30, 2014 and 2013, on a discrete basis, we released a valuation allowance of $8 million and $7 million, respectively, on certain net deferred tax assets in Luxembourg as a result of significant changes in estimated future taxable income resulting from increased intercompany receivables and, therefore, increased interest income in Luxembourg, our primary treasury center outside of the U.S. During the nine months ended September 30, 2014 we released a valuation allowance of $1 million on certain net deferred tax assets in Italy as a result of the restructuring of our European Performance Products business which caused our tax expense to be $7 million lower than it would have been because we are also able to record a tax benefit for losses incurred during the nine months ended September 30, 2014.

        During the nine months ended September 30, 2014, after extensive analysis, we filed amended U.S. tax returns for tax years 2008 through 2012, along with our original U.S. tax return for tax year 2013, which allowed us to utilize substantially all of our U.S. foreign tax credits. As a result of utilizing these assets which had been subject to a valuation allowance, we recognized a discrete income tax benefit of $94 million in the third quarter of 2014.

        During the nine months ended September 30, 2014 and 2013, for unrecognized tax benefits that impact tax expense, we recorded a net increase in unrecognized tax benefits with a corresponding income tax expense of $4 million for each period. Additional decreases in unrecognized tax benefits were offset by cash settlements or decrease in net deferred tax assets and, therefore, did not affect income tax expense.

Huntsman Corporation

        We recorded income tax expense of $39 million and $105 million for the nine months ended September 30, 2014 and 2013, respectively. Absent the $94 million benefit of U.S. foreign tax credits, our income tax expense would have been $133 million for the nine months ended September 30, 2014. Our tax expense is significantly 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. Notably we continue to earn a significant portion of our pre-tax income in the United States with an approximate 35% federal and state blended effective tax rate.

Huntsman International

        Huntsman International recorded income tax expense of $29 million and $106 million for the nine months ended September 30, 2014 and 2013, respectively. Absent the $105 million benefit of U.S. foreign tax credits, Huntsman International's income tax expense would have been $134 million for the nine months ended September 30, 2014. Our tax expense is significantly 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. Notably we continue to earn a significant portion of our pre-tax income in the United States with an approximate 35% federal and state blended effective tax rate.