Unrecognized tax benefits that would impact the effective tax rate, net of tax benefits

[Table of Contents](#i43d04c9d26874e33802bdf64c458414a_7)Chile Tax Matters. In September 2014, the Chile legislature approved a tax reform package that implemented a dual tax system, which was amended in January 2016. Under previous rules, FCX’s share of income from Chile operations was subject to an effective 35 percent tax rate allocated between income taxes and dividend withholding taxes. Under the amended tax reform package, FCX’s Chile operation is subject to the “Partially-Integrated System,” resulting in FCX’s share of income from El Abra being subject to progressively increasing effective tax rates of 35 percent through 2019 and 44.5 percent in 2020 and thereafter. In November 2017, the progression of increasing tax rates was delayed by the Chile legislature so that the 35 percent rate continued through 2021, increasing to 44.5 percent in 2022 and thereafter. In January 2020, the Chile legislature approved a tax reform package that would further delay the 44.5 percent rate until 2027 and thereafter.   
In 2010, the Chile legislature approved an increase in mining royalty taxes to help fund earthquake reconstruction activities, education and health programs. Beginning in 2018, and through 2023 mining royalty rates at FCX’s El Abra mine are based on a sliding scale of 5 to 14 percent (depending on a defined operational margin).  
Uncertain Tax Positions. FCX accounts for uncertain income tax positions using a threshold and measurement criteria for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FCX’s policy associated with uncertain tax positions is to record accrued interest in interest expense and accrued penalties in other (expense) income, net rather than in the provision for income taxes.   
A summary of the activities associated with FCX’s reserve for unrecognized tax benefits for the years ended December 31 follows. The balance at year-end December 31, 2019, was revised by $115 million and the balance at year-end December 31, 2020, was revised by $179 million to adjust for amounts paid on accruals not yet settled.

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | 2021 |  | 2020 |  | 2019 |
| Balance at beginning of year | $ | 474  |  |  | $ | 491  |  |  | $ | 494  |  |
| Additions: |  |  |  |  |  |
| Prior year tax positions | 330  |  |  | 56  |  |  | 86  |  |
| Current year tax positions | 71  |  |  | 60  |  |  | 11  |  |
|  |  |  |  |  |  |
| Decreases: |  |  |  |  |  |
| Prior year tax positions | (30) |  |  | (82) |  |  | (75) |  |
|  |  |  |  |  |  |
| Settlements with taxing authorities | (37) |  |  | (51) |  |  | (25) |  |
|  |  |  |  |  |  |
|  |  |  |  |  |  |
| Balance at end of year | $ | 808  |  |  | $ | 474  |  |  | $ | 491  |  |

  
The total amount of accrued interest and penalties associated with unrecognized tax benefits was $620 million at December 31, 2021, primarily relating to unrecognized tax benefits associated with cost recovery methods and royalties and other related mining taxes, and $307 million at December 31, 2020, and $339 million at December 31, 2019.  
The reserve for unrecognized tax benefits of $808 million at December 31, 2021, included $694 million ($465 million net of income tax benefits and valuation allowances) that, if recognized, would reduce FCX’s provision for income taxes. Changes in the reserve for unrecognized tax benefits associated with current and prior-year tax positions were primarily related to uncertainties associated with FCX's tax treatment of cost recovery methods. There continues to be uncertainty related to the timing of settlements with taxing authorities, but if additional settlements are agreed upon during the year 2022, FCX could experience a change in its reserve for unrecognized tax benefits.  
FCX or its subsidiaries file income tax returns in the U.S. federal jurisdiction and various state and foreign jurisdictions. The tax years for FCX’s major tax jurisdictions that remain subject to examination are as follows: 

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Jurisdiction |  | Years Subject to Examination |  | Additional Open Years |
| U.S. Federal |  | 2017-2018 |  | 2014-2016, 2019-2021 |
| Indonesia |  | 2011-2018 |  | 2020-2021 |
| Peru |  | 2016 |  | 2017-2021 |
| Chile |  | 2020 |  | 2018-2019, 2021 |
|  |  |  |  |  |

  
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