Lotos

Integrated Annual Report 2014

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10. Income tax

10.1 Tax expense

PLN '000 Note Year ended
Dec 31 2014
 		 Year ended
Dec 31 2013
(restated)
Current tax   69,377 81,911
Deferred tax 10.3 (726,720) (180,015)
Total income tax charged to net profit or loss 10.2 (657,343) (98,104)
Tax expense recognised in other comprehensive income (net), including:   (112,756) 22,909
     - cash flow hedging 23 (111,099) 22,945
     - actuarial gain/(loss) relating to post-employment benefits   (1,657) (36)

For the entities operating in Poland, the current and deferred portion of income tax was calculated at the rate of 19% of taxable income..

In the case of Norwegian 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 (27% tax rate) and the petroleum tax system (additional tax rate of 51%).

In the case of Lithuanian subsidiaries (AB LOTOS Geonafta Group), the current and deferred portion of income tax was calculated at the rate of 15%.

10.2 Corporate income tax calculated at effective tax rate and reconciliation of pre-tax profit to taxable income

PLN '000 Dec 31 2014

 		 Year ended
Dec 31 2013
(restated)
Pre-tax loss (2,123,715) (58,676)
Income tax at 19% (403,506) (11,148)
Permanent differences 3,869 5,355
Unrecognised deferred tax asset under tax loss carry-forward 60,145 -
Tax effect of tax losses incurred in the period - 1,418
Tax effect of tax losses deducted in the period (1,416) (395)
Tax effect of share in profit of equity-accounted entities 4,648 3,445
Tax effect of the bio-component tax credit (1) - (10,935)
Adjustments disclosed in current year related to tax for previous years 454 178
Difference resulting from the application of tax rates other than 19%: (322,100) (86,528)
     - Norway (322,323) (83,220)
     - Lithuania 968 (1,594)
     - Cyprus (746) (1,713)
     - Netherlands Antilles 1 (1)
Other differences 563 506
Income tax expense (657,343) (98,104)

(1) The Group used higher tax credit than was expected based on the preliminary estimates which served as the basis for recognition of the relevant deferred tax assets. Therefore, as at December 31st 2013, the deferred tax assets related to bio-component tax credit were recognised on the basis of the full amount of tax credit left to be used in the coming years. In 2014, the Group used the full available tax credit amount and reversed the related deferred tax asset. For more information on the basis and rules for the use of bio-component tax credit, see Note 30.2.

10.3 Deferred income tax

PLN '000 Note Statement of financial position Change
Dec 31 2014
 		 Dec 31 2013
(restated) 
         
Deferred tax assets   1,488,901 924,534 564,367
Deferred tax liabilities   (55,527) (275,823) 220,296
Net deferred tax assets/(liabilities) 10.3.1 1,433,374 648,711 784,663
Exchange differences on translating deferred tax of foreign operations       65,745
Deferred tax disclosed under other comprehensive income/(loss), net 10.1     (112,756)
Other differences:       (10,932)
     - uplift (1)       (6.337)
     - reclassification to non-current assets held for sale (or disposal groups)       1,727
     - other       (6,322)
Deferred tax expense recognised in net profit or loss 10.1     726,720

(1) Tax credit applicable in Norway (uplift). The determined uplift rate is 5.5% pa. The uplift is calculated based on the capitalised investment expenditure (offshore production installation) and is settled against taxable income over a period of four years from the year the expenditure was incurred. Any uplift unused in a given period may be settled in the future until fully used, with no time limit. The amount of LOTOS Production and Exploration Norge AS's unused uplift increased the deferred tax asset under the Group's tax losses carried forward, and had no effect on tax disclosed in the consolidated statement of comprehensive income.

10.3.1 Deferred tax assets and liabilities

PLN '000 Note Dec 31 2013
(restated)		 Deferred tax charged to net profit or loss Deferred tax disclosed under other comprehensive income/(loss) Exchange differences on translating deferred tax of foreign operations Other differences Dec 31 2014
Deferred tax assets              
Employee benefit obligations   49,561 3,038 1,657 (232) (1,724) 52,300
Inventory write-downs   564 85,593 - 1 - 86,158
Impairment losses on property, plant and equipment and other intangible assets   115,837 17,213 - (7,901) - 125,149
Impairment losses on assets related to the YME field   714,882 (714,882) (1) - - - -
Negative fair value of derivative financial instruments   13,734 6,182 - - - 19,916
Exchange differences on revaluation of foreign-currency denominated items   6,446 (6,292) - 226 - 380
Impairment losses on receivables   16,200 1,225 - - - 17,425
Finance lease liabilities   28,068 (3,735) - - - 24,333
Provisions for decommissioning of oil and gas facilities and land reclamation   187,827 100,157 - (12,426) - 275,558
Unrealised margin assets   8,545 619 - - - 9,164
Tax losses carried forward   1,089,325 947,917 (1) - (74,829) 12,656 1,975,069
Other provisions   9,619 1,529 - - - 11,148
Bio-component tax credit   4,463 (4,463) - - - -
Cash flow hedge accounting   - - 96,787 - - 96,787
Other   16,919 10,218 - (470) - 26,667
Total   2,261,990 444,319 98,444 (95,631) 10,932 2,720,054
Deferred tax liabilities              
Difference between the current tax value and carrying amount of property, plant and equipment and other intangible assets   1,493,672 (273,812) - (30,900) - 1,188,960
Positive fair value of derivative financial instruments   140 (140) - - - -
Tax liabilities associated with the acquired exploration and production licences in Lithuania   49,522 (20,905) - 1,010 - 29,627
Cash flow hedge accounting   14,312 - (14,312) - - -
Accrued interest   43,966 12,937 - 2 - 56,905
Other   11,667 (481) - 2 - 11,188
Total   1,613,279 (282,401) (14,312) (29,886) - 1,286,680
               
Net deferred tax assets/(liabilities) 10.3 648,711 726,720 112,756 (65,745) 10,932 1,433,374

(1) In connection with the recognition in 2014 of impairment losses on all capital expenditure on the YME development project (see Note 13.1.2) and in relation to cease of tax depreciation of those assets in accordance with Norwegian tax regulations all deferred tax assets related to the impairment losses on capital expenditure on the YME project were transferred to tax losses carried forward.

Taxable temporary differences are expected to expire in 2015–2083.

As at December 31st 2014, the amount of unrecognised deferred tax assets under losses carried forward was PLN 63,025 thousand (December 31st 2013: PLN 6,452 thousand).

The Notes to the consolidated financial statements are an integral part of the statements.
(This is a translation of a document originally issued in Polish)

Financial information