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 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. During the six months ended June 30, 2011, we released valuation allowances of $6 million on certain net deferred tax assets in Luxembourg. During the six months ended June 30, 2010, we released a valuation allowance of $14 million on certain net deferred tax assets in Australia.

        During the six months ended June 30, 2011, we recorded a net increase in unrecognized tax benefits with a corresponding income tax expense of approximately $1 million and during the six months ended June 30, 2010 we recorded a net decrease in unrecognized tax benefits with a corresponding income tax benefit of $7 million, resulting from the settlement of tax audits, the effective settlement of certain tax positions and the expiration of statutes of limitations, net of current year additions.

HUNTSMAN CORPORATION

        In addition to the tax benefits resulting from the valuation allowance release and the tax effects resulting from the unrecognized tax benefit items discussed above, during the six months ended June 30, 2011 and 2010 we recognized $1 million and $13 million of tax benefit, respectively, on $3 million and $162 million of loss on early extinguishment of debt (the majority of the 2010 loss is not deductible for tax purposes). Excluding these items, we recorded income tax expense of $62 million and $39 million for the six months ended June 30, 2011 and 2010, respectively. Our tax obligations are affected by the mix of income and losses in the tax jurisdictions in which we operate.

HUNTSMAN INTERNATIONAL

        In addition to the tax benefits resulting from the valuation allowance release and the tax effects resulting from the unrecognized tax benefit items discussed above, during the six months ended June 30, 2011 and 2010 Huntsman International recognized $1 million and $5 million of tax benefit, respectively, on $3 million and $16 million of loss on early extinguishment of debt. Excluding these items, Huntsman International recorded income tax expense of $62 million and $42 million for the six months ended June 30, 2011 and 2010, respectively. Our tax obligations are affected by the mix of income and losses in the tax jurisdictions in which we operate.