Grupa LOTOS S.A. - Annual Report 2010

13.1 Tax Expense

The main components of the tax expense for the year ended December 31st 2010 and for the year ended December 31st 2009 are as follows:

PLN '000	Year ended Dec 31 2010	Year ended Dec 31 2009
Corporate income tax	94,810	84,239
Deferred tax	(54,224)	113,557
Total tax charged to consolidated profit	40,586	197,796
Income tax expense recognised in the statement of changes in equity	-	88
Income tax expense recognised in other comprehensive income	(2,877)	-

For entities operating in Poland, the current portion of income tax was calculated at the rate of 19% of the corporate income tax base. In the case of foreign subsidiary LOTOS Exploration and Production Norge AS, the marginal tax rate is 78% of the tax base. LOTOS Exploration and Production Norge AS's activities are subject to taxation under two parallel tax systems: the corporate income tax system (28% tax rate) and the petroleum tax system (additional tax rate of 50%).

13.2 Income Tax Calculated at Effective Tax Rate and Reconciliation of Pre-tax Profit (Loss) to Taxable Income

The change in deferred tax assets and liabilities charged to the statement of comprehensive income in 2010 is primarily attributable to the fact that as of January 1st 2010 Grupa LOTOS S.A. and some Group companies have applied the tax method to measure the foreign exchange differences for the purpose of corporate income tax settlements. In 2007-2009, the Parent Undertaking and some Group companies used the accounting method to measure the foreign exchange differences for the purpose of corporate income tax settlements.

PLN '000	Year ended Dec 31 2010	Year ended Dec 31 2009
Pre-tax profit/(loss)	721,939	1,109,608
Income tax at the rate of 19%	137,168	210,826
Tax effect of tax losses incurred in period	693	2,761
Tax effect of interest in investments in associated undertakings	(3,543)	(1,563)
Income tax disclosed in the statement of changes in equity	-	88
Bio-component tax relief adjustment	(3,296)	-
Adjustments disclosed in current year related to tax for previous years	(3,334)	(29)
Difference resulting from tax charged at rates other than 19%	(61,973)	(6,521)
Permanent differences	20,500	(6,698)
Tax effect of bio-component tax relief	(19,964)	-
Tax effect of special economic zone tax relief	(4,755)	-
Other differences	(20,910)	(1,068)
Total	40,586	197,796
Income tax at efective tax rate	5.6%	17.8%

The difference between the tax amount disclosed in the statement of comprehensive income and the amount calculated by applying the tax rate to pre-tax profit results from the following items:

 

PLN '000	Year ended Dec 31 2010	Year ended Dec 31 2009
Pre-tax profit/(loss) of companies subject to 19% tax rate	759,768	1,047,841
Income tax at the rate of 19%	144,356	199,090
Tax effect of revenue/income not classified as revenue/income under tax regulations	(145,063)	(117,541)
Tax effect of expenses which are non-deductible under tax regulations	210,752	114,941
Tax effect of tax losses deducted in period	(62,945)	(65,751)
Tax effect of tax losses incurred in period	693	2,761
Tax effect of interest in investments in associated undertakings	(3,543)	(1,563)
Other	(21,119)	(11,145)
Total	123,131	120,792
Income tax disclosed in the statement of changes in equity	-	88
Bio-component tax relief adjustment	(3,296)	-
Adjustments disclosed in current year related to tax for previous years	(3,334)	(29)
Income tax of companies subject to 19% tax rate	116,501	120,851
Tax effect of foreign operations (a)	(21,691)	(36,612)
Total income tax disclosed in the statement of comprehensive income	94,810	84,239
Pre-tax profit/(loss) of foreign operations subject to 28% and 50% tax rate	(37,829)	61,767
Revenue/income not classified as revenue/income under tax regulations	2,156	(16,707)
Expenses which are non-deductible under tax regulations	(187,141)	(179,386)
Other differences	(3,209)	(3,669)
Tax base – taxation at the tax rate of 28%	(226,023)	(137,995)
Tax credit in connection with higher depreciation of assets	(61,359)	(44,674)
Other	33,320	(9,451)
Tax base – taxation at the tax rate of 50%	(254,062)	(192,120)
Income tax at the rate of 28%	(63,286)	(38,639)
Income tax at the rate of 50%	(127,031)	(96,060)
Accrued tax loss carry-forward	165,404	96,460
Other differences	3,222	1,627
Tax effect of foreign operations (a)	(21,691)	(36,612)

13.3 Corporate Income Tax Receivable and Payable

 

PLN '000	Dec 31 2010	Dec 31 2009
Corporate income tax receivable	47,492	131,299
Expected tax refund (1)	47,492	131,299
Corporate income tax payable	15,188	11,867
Income tax expected to be paid	15,188	11,867

13.4 Deferred Income Tax

As at December 31st 2010, December 31st 2009 and January 1st 2009, the net deferred tax assets (liabilities) comprised the following items:

PLN '000	Statement of financial position			Statement of comprehensive income for the year ended
	Dec 31 2010	Dec 31 2009 (restated)	Jan 1 2009 (restated)	Dec 31 2010	Dec 31 2009 (restated)
Deferred tax liabilities
Difference between present tax and accounting value of property, plant and equipment and intangible assets	518,132	373,262	207,580	144,870	165,682
Positive valuation of derivatives	13,180	10,508	20,635	2,672	(10,127)
Finance lease	16,089	16,452	180	(363)	16,272
Exchange differences on translation of foreign operations recognised in equity	2,877	-	-	2,877	-
Exchange differences on revaluation of foreign-currency denominated items	21,146	20,216	13	930	20,203
Other	21,475	12,558	3,888	8,917	8,670
Deferred tax liabilities	592,899	432,996	232,296	159,903	200,700
Deferred tax assets
Provision for employee benefits	34,783	18,903	19,412	15,880	(509)
Impairment losses on inventories	1,473	1,531	40,108	(58)	(38,577)
Impairment losses on property, plant and equipment and intangible assets	23,264	11,036	113	12,228	10,923
Negative valuation of derivatives	52,036	41,875	29,339	10,161	12,536
Exchange differences on revaluation of foreign-currency denominated items	35,985	1	-	35,984	1
Impairment losses on receivables	18,011	20,772	16,002	(2,761)	4,770
Finance lease	14,415	15,729	183	(1,314)	15,546
Difference between oil and gas facilities decommissioning provision and asset	15,551	10,932	8,055	4,619	2,877
Unrealised margin assets	1,789	8,026	5,465	(6,237)	2,561
Accrued tax loss carry-forward	380,561	269,653	127,189	110,908	142,464
Other provisions	8,997	3,986	2,012	5,011	1,974
Tax relief on biocomponents	19,964	-	-	19,964	-
Special economic zone tax relief	4,755	-	-	4,755	-
Other	18,073	14,208	75,175	3,865	(60,967)
Deferred tax assets	629,657	416,652	323,053	213,005	93,599
Deferred tax expense				(53,102)	107,101
Exchange differences on translation of foreign operations				(1,108)	6,810
Other differences				(14)	(354)
Deferred tax expense recognised in the statement of comprehensive income				(54,224)	113,557
Net deferred tax assets/liabilities, including:	36,758	(16,344)	90,757
Deferred tax assets – continuing operations	629,657	416,652	323,053
Deferred tax assets – discontinued operations	-	-	-
Deferred tax liabilities – continuing operations	(592,899)	(432,996)	(232,296)
Deferred tax liabilities – discontinued operations	-	-	-

As at December 31st 2009, asset related to accrued tax loss carry-forward in the amount of
PLN 88 thousand was recognised in the statement of changes in equity.

Since the Group companies are separate taxpayers, deferred tax assets and deferred tax liabilities are calculated at each company individually. Deferred tax assets and deferred tax liabilities are offset by the Group companies. Consequently, consolidated balance-sheets present deferred tax assets and liabilities as follows:

PLN '000	Dec 31 2010	Dec 31 2009
Deferred tax assets	159,901	74,267
Deferred tax liabilities	(123,143)	(90,611)
Net deferred tax assets/(liabilities)	36,758	(16,344)

Taxable temporary differences are expected to expire in 2011–2085.

As at December 31st 2010, the value of losses with respect to which no deferred tax assets were recognised in the balance sheet amounted to PLN 78,937 thousand (December 31st 2009: PLN 66,761  thousand).