10. Income tax
10.1 Tax expense
| Note | 2016 | 2015 | |
|---|---|---|---|
| Current tax | 115,379 | 82,052 | |
| Deferred tax | 10.3 | 448,816 | (14,026) |
| Total income tax charged to net profit or loss | 10.2 | 564,195 | 68,026 |
| Tax expense recognised in other comprehensive income (net), including: | (25,953) | (66,191) | |
| - cash flow hedging | 21 | (26,254) | (67,620) |
| - actuarial gain/(loss) relating to post-employment benefits | 301 | 1,429 |
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 (25% tax rate) and the petroleum tax system (additional tax rate of 53%). In 2017, the tax rates will be 24% under the corporate income tax system and 54% under the petroleum tax system, which affects the amount of deferred income tax recognised in the current reporting period.
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
| Note | 2016 | 2015 | |
|---|---|---|---|
| Pre-tax profit/(loss) | 1,579,412 | (195,274) | |
| Income tax at 19% | 300,088 | (37,102) | |
| Permanent differences: | 15,073 | 53,612 | |
| - VAT expense | 30.1 | 7,479 | 30,753 |
| - interest on past-due public charges | 1,192 | 14,832 | |
| - other permanent differences | 6,402 | 8,027 | |
| Tax effect of tax losses incurred in the period | - | (198) | |
| Tax effect of tax losses deducted in the period | (435) | (5,273) | |
| Tax effect of share in profit of equity-accounted entities | (550) | 5,903 | |
| Adjustments disclosed in current year related to tax for previous years | (1,046) | (1,588) | |
| Difference resulting from the application of tax rates other than 19%: | 252,901 | 50,323 | |
| - Norway (1) | 249,132 | 44,900 | |
| - Lithuania | 1,115 | 5,114 | |
| - Cyprus | 2,694 | 343 | |
| - Netherlands Antilles | (40) | (34) | |
| Other differences | (1,836) | 2,349 | |
| Income tax | 564,195 | 68,026 |
(1) Including the tax effect of a PLN 80,893 thousand (2015: PLN 29,612 thousand) reduction in deferred tax assets related to the tax investigation at LOTOS Exploration and Production Norge AS (see Note 30.1).
10.3 Deferred income tax
| Note | Statement of financial position | Change | ||
|---|---|---|---|---|
| Dec 31 2016 | Dec 31 2015 | |||
| Deferred tax assets | 596,034 | 924,478 | (328,444) | |
| Deferred tax liabilities | (57,358) | (47,626) | (9,732) | |
| Net deferred tax assets/(liabilities) | 10.3.1 | 538,676 | 876,852 | (338,176) |
| Exchange differences on translating deferred tax of foreign operations | (59,732) | |||
| Deferred tax disclosed under other comprehensive income/(loss), net | 10.1 | (25,953) | ||
| Effect of accounting for the acquisition price of the Sleipner assets (1) | (24,955) | |||
| Deferred tax expense recognised in net profit or loss | 10.1 | (448,816) | ||
(1) In accordance with the agreement providing for the acquisition of the Sleipner assets from ExxonMobil Exploration and Production Norway AS, made on October 30th 2015 (see Note 13.1.3 to the Consolidated financial statements for 2015), within three months from the acquisition date the parties revised the transaction settlement, as a result of which on April 4th 2016 the Group paid USD 4.76m to ExxonMobil Exploration and Production Norway AS. The revision had no effect on the Group’s statement of comprehensive income.
Taxable temporary differences are expected to expire in 2017–2083.
As at December 31st 2016, the value of unrecognised tax assets on account of tax losses was PLN 266 thousand (December 31st 2015: PLN 683 thousand).
10.3.1 Deferred tax assets and liabilities
| Note | Dec 31 2015 | 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 2016 | |
|---|---|---|---|---|---|---|---|
| Deferred tax assets | |||||||
| Employee benefit obligations | 54,871 | 1,880 | (301) | 220 | - | 56,670 | |
| Inventory write-downs | 50,912 | (50,454) | - | 6 | - | 464 | |
| Impairment losses on property, plant and equipment and other intangible assets | 297,553 | 12,978 | - | 33,923 | - | 344,454 | |
| Negative fair value of derivative financial instruments | 25,594 | (11,300) | - | - | - | 14,294 | |
| Exchange differences on revaluation of foreign-currency denominated items | 1,228 | 1,426 | - | (37) | - | 2,617 | |
| Impairment losses on receivables | 16,893 | (504) | - | - | - | 16,389 | |
| Finance lease liabilities | 39,373 | (6,283) | - | - | - | 33,090 | |
| Provisions for/assets related to decommissioning of oil and gas extraction facilities and land reclamation | 268,972 | 175,995 | - | 29,410 | - | 474,377 | |
| Unrealised margin assets | 3,479 | 2,132 | - | - | - | 5,611 | |
| Tax losses carried forward | 781,746 | (494,803) | - | 32,271 | 24,955 | 344,169 | |
| Other provisions | 11,676 | (557) | - | 1 | - | 11,120 | |
| Cash flow hedge accounting | 164,407 | - | 26,254 | - | - | 190,661 | |
| Other | 20,685 | (2,693) | - | 272 | - | 18,264 | |
| 1,737,389 | (372,183) | 25,953 | 96,066 | 24,955 | 1,512,180 | ||
| Deferred tax liabilities | |||||||
| Difference between current tax base and carrying amount of property, plant and equipment and other intangible assets | 724,707 | 9,445 | - | 33,023 | - | 767,175 | |
| Difference between current tax value and carrying amount of settlements under joint operations (Norwegian fields) | 952 | 50,296 | - | 2,610 | - | 53,858 | |
| Positive fair value of derivative financial instruments | 37,921 | (26,070) | - | - | - | 11,851 | |
| Tax liabilities associated with acquired exploration and production licences in Lithuania | 18,828 | (1,673) | - | 699 | - | 17,854 | |
| Accrued interest | 67,576 | 16,727 | - | 2 | - | 84,305 | |
| Other | 10,553 | 27,908 | - | - | - | 38,461 | |
| 860,537 | 76,633 | - | 36,334 | - | 973,504 | ||
| Net deferred tax assets/(liabilities) | 10.3 | 876,852 | (448,816) | 25,953 | 59,732 | 24,955 | 538,676 |