Integrated Annual Report of LOTOS Capital Group 2015

10.1 Tax expense

PLN '000	Note	Year ended Dec 31 2015	Year ended Dec 31 2014
Current tax		82,052	69,377
Deferred tax	10.3	(14,026)	(726,720)
Total income tax charged to net profit or loss	10.2	68,026	(657,343)
Tax expense recognised in other comprehensive income (net), including:		(66,191)	(112,756)
- cash flow hedging	23	(67,620)	(111,099)
- actuarial gain/(loss) relating to post-employment benefits		1,429	(1,657)

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	Note	Year ended Dec 31 2015	Year ended Dec 31 2014
Pre-tax loss		(195,274)	(2,123,715)
Income tax at 19%		(37,102)	(403,506)
Permanent differences:		53,612	3,869
- VAT expense	35.1	30,753	-
- interest on past-due public charges		14,832	29
- other permanent differences		8,027	3,840
Unrecognised deferred tax assets on account of tax losses carried forward		-	60,145
Tax effect of tax losses incurred in the period		(198)	-
Tax effect of tax losses deducted in the period		(5,273)	(1,416)
Tax effect of share in profit of equity-accounted entities		5,903	4,648
Adjustments disclosed in current year related to tax for previous years		(1,588)	454
Difference resulting from the application of tax rates other than 19%:		50,323	(322,100)
- Norway		44,900	(322,323)
- Lithuania		5,114	968
- Cyprus		343	(746)
- Netherlands Antilles		(34)	1
Other differences		2,349	563
Income tax expense		68,026	(657,343)

10.3 Deferred income tax

PLN '000	Note	Statement of financial position		Change
		Dec 31 2015	Dec 31 2014
Deferred tax assets		924,478	1,488,901	(564,423)
Deferred tax liabilities		(47,626)	(55,527)	7,901
Net deferred tax assets/(liabilities)	10.3.1	876,852	1,433,374	(556,522)
Exchange differences on translating deferred tax of foreign operations				54,914
Deferred tax disclosed under other comprehensive income/(loss), net	10.1			(66,191)
Other differences:				581,825
- uplift (1)				(4,257)
- effect of deferred tax recognised under other income as Gain on sale of organised part of business				(1,360)
- effect of accounting for the acquisition price of the Sleipner assets				587,442
Deferred tax expense recognised in net profit or loss	10.1			14,026

Taxable temporary differences are expected to expire in 2016–2083.

As at December 31st 2015, the value of unrecognised tax assets on account of tax losses was PLN 683 thousand (December 31st 2014: PLN 63,025 thousand). The decrease in the amount of the unrecognised tax assets results from a partial settlement of relevant tax losses, as well as from the loss of the right to deduct tax losses due to expiry of the period when the tax losses could be settled in accordance with the tax regulations.

10.3.1 Deferred tax assets and liabilities

PLN '000	Note	Dec 31 2014	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 2015
Deferred tax assets
Employee benefit obligations		52,300	2,804	(1,429)	(164)	1,36	54,871
Inventory write-downs		86,158	(35,250)	-	4	-	50,912
Impairment losses on property, plant and equipment and other intangible assets		310,872	7,340	-	(20,659)	-	297,553
Negative fair value of derivative financial instruments		19,916	5,678	-	-	-	25,594
Exchange differences on revaluation of foreign-currency denominated items		380	746	-	102	-	1,228
Impairment losses on receivables		17,425	(532)	-	-	-	16,893
Finance lease liabilities		24,333	15,040	-	-	-	39,373
Provisions for decommissioning of oil and gas facilities and land reclamation		275,558	9,980	-	(16,566)	-	268,972
Unrealised margin assets		9,164	(5,685)	-	-	-	3,479
Tax losses carried forward		1,320,293	82,737	-	(38,099)	(583,185)	781,746
Other provisions		11,148	526	-	2	-	11,676
Cash flow hedge accounting		96,787	-	67,620	-	-	164,407
Other		26,667	(5,880)	-	(102)	-	20,685
Total		2,251,001	77,504	66,191	(75,482)	(581,825)	1,737,389
Deferred tax liabilities
Difference between the current tax base and carrying amount of property, plant and equipment and other intangible assets		719,907	25,168	-	(20,368)	-	724,707
Positive fair value of derivative financial instruments		-	37,921	-	-	-	37,921
Tax liabilities associated with the acquired exploration and production licences in Lithuania		29,627	(10,600)	-	(199)	-	18,828
Accrued interest		56,905	10,672	-	(1)	-	67,576
Other		11,188	317	-	-	-	11,505
Total		817,627	63,478	-	(20,568)	-	860,537
Net deferred tax assets/(liabilities)	10.3	1,433,374	14,026	66,191	(54,914)	(581,825)	876,852