10. Income tax expense

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10.1 Tax expense

PLN ’000 Note Year ended
Dec 31 2013		 Year ended
Dec 31 2012
(restated)
Current tax   82,471 53,593
Deferred tax 10.3 (183,878) (615,128)
Total income tax recognised in consolidated net profit or loss   (101,407) (561,535)
Tax expense recognised in other comprehensive income (net), including:   22,909 75,639
- exchange differences on translating foreign operations   - (13,864)
- cash flow hedging 23 22,945 89,717
- actuarial gain/(loss) relating to post-employment benefits   (36) (214)

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

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 (28% tax rate) and the petroleum tax system (additional tax rate of 50%).

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%.

{GRI 10.2}

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

PLN ’000 Year ended
Dec 31 2013		 Year ended
Dec 31 2012
(restated)
Pre-tax profit (61,979) 366,341
Income tax at 19% (11,776) 69,605
Permanent differences 5,355 11,599
Difference related to accounting for step acquisition of control
(AB LOTOS Geonafta Group) (1)		 - (11,716)
Tax effect of tax losses incurred in the period 1,418 101
Tax effect of tax losses deducted in the period (395) (1,211)
Tax effect of share in profit of equity-accounted entities 191 -
Tax effect of the bio-component tax credit (2) (10,935) (5,518)
Adjustments disclosed in current year related to tax
for previous years		 178 (2,978)
Difference resulting from the application of tax rates other
than 19%:		 (85,949) (623,130)
- Norway (83,220) (618,301)
- Lithuania (1,015) (1,485)
- Cyprus (1,713) (3,341)
- Netherlands Antilles (1) (3)
Other differences 506 1,713
Income tax expense (101,407) (561,535)

(1) Data for 2012 includes accounting for the acquisition of control over UAB Manifoldas by AB LOTOS Geonafta. For more information on the transaction, see Note 6.

(2) The Group used higher tax credit than suggested by the preliminary estimates based on which the relevant deferred tax assets had been recognised. 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. For more information on the basis and rules for the use bio-component tax credit, see Note 30.2.

10.3 Deferred income tax

Net deferred tax assets/(liabilities) before set-off comprise the following items:

{GRI EC.4}

PLN ’000 Statement of financial position Change
Dec 31 2013 Dec 31 2012
(restated)		 Jan 1 2012 2013 2012
(restated)
A B C A-B B-C
Deferred tax assets          
Employee benefit obligations 49,561 42,715 36,701 6,846 6,014
Impairment losses on inventories 797 448 1,877 349 (1,429)
Impairment losses on property, plant and equipment and other intangible assets 127,529 100,679 40,995 26,850 59,684
Impairment losses on YME field assets 710,083 806,962 165,741 (96,879) 641,221
Negative fair value of derivative financial instruments 13,734 28,905 35,671 (15,171) (6,766)
Exchange differences on revaluation of foreign-currency denominated items 6,446 80 320 6,366 (240)
Impairment losses on receivables 16,200 15,693 17,767 507 (2,074)
Finance lease 28,068 32,032 33,765 (3,964) (1,733)
Provisions for decommissioning of oil and gas facilities and land reclamation 188,828 28,086 20,746 160,742 7,340
Unrealised margin assets 8,545 3,120 2,382 5,425 738
Tax loss carried forward 1,145,075 986,442 769,794 158,633 216,648
Other provisions 9,619 6,017 6,011 3,602 6
Bio-component tax credit 4,463 10,934 15,752 (6,471) (4,818)
Cash flow hedge accounting - 8,633 98,350 (8,633) (89,717)
Other 17,220 21,263 18,726 (4,043) 2,537
Total 2,326,168 2,092,009 1,264,598 234,159 827,411
Deferred tax liabilities          
Difference between the current tax value
and carrying amount of property, plant and equipment and intangible assets		 1,468,538 1,114,692 824,651 353,846 290,041
Positive fair value of derivative financial instruments 140 2,159 6,088 (2,019) (3,929)
Finance lease 28,698 31,814 33,527 (3,116) (1,713)
Exchange differences on translating foreign operations recognised in equity - - 13,864 - (13,864)
Exchange differences on revaluation of foreign-currency denominated items - 34,605 6,312 (34,605) 28,293
Tax liabilities associated with the acquired exploration and production licences in Lithuania 57,537 64,736 54,296 (7,199) 10,440
Cash flow hedge accounting 14,312 - - 14,312 -
Accrued interest 43,966 33,128 16,968 10,838 16,160
Other 14,000 12,434 13,990 1,566 (1,556)
Total 1,627,191 1,293,568 969,696 333,623 323,872
Net deferred tax assets/(liabilities) 698,977 798,441 294,902 (99,464) 503,539
 
Change in deferred tax assets and liabilities disclosed in the statement of financial position (99,464) 503,539
Reconciliation of differences between the change in deferred tax assets and liabilities disclosed in the statement of financial position and the deferred tax disclosed in the statement of comprehensive income  
  Note  
Exchange differences on translating deferred tax of foreign operations   122,175 11,651
Effect of accounting for the acquisition price of the Heimdal assets (1) 13 138,115 -
Deconsolidation (LOTOS Tank Sp. z o.o.) (2)   143 -
Deferred tax disclosed as a result of accounting for step acquisition of control (AB LOTOS Geonafta Group) (3)   - 24,299
Deferred tax disclosed under other comprehensive income, net 10.1 22,909 75,639
Deferred tax expense recognised in net profit or loss 183,878 615,128

(1) Accounting for the tax due resulting from pro and contra cash flows generated in the transitional period, which are a part of the cost of Heimdal assets, by decreasing the tax asset relating to tax losses.

(2) For more information on the transaction, see Note 2.

(3) For more information on the transaction, see Note 6.

As the Group entities are separate taxpayers, deferred tax (deferred tax assets and liabilities) is assessed separately by each entity. The Group entities offset deferred tax assets and deferred tax liabilities. The table below presents the deferred tax disclosed in the consolidated statement of financial position:

PLN ’000 Dec 31 2013 Dec 31 2012
(restated)
Deferred tax assets 980,284 1,121,314
Deferred tax liabilities (281,307) (322,873)
Net deferred tax assets (liabilities) 698,977 798,441

Taxable temporary differences are expected to expire in 2014–2083.


As at December 31st 2013, the tax losses with respect to which no deferred tax assets were recognised in the statement of financial position were PLN 33,960 thousand (December 31st 2012: PLN 43,101 thousand ). The decrease in the amount of the above tax losses in 2013 is a result of their partial settlement, as well as the loss of deduction right due to expiry of the period when the tax losses could be settled in accordance with the tax regulations.