Income tax – LOTOS Report 2017

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10.1 Tax expense
	Note	2017	2016
Current tax		567.7	115.4
Deferred tax	10.3	208.2	448.8
Total income tax charged to net profit or loss	10.2	775.9	564.2
Tax expense recognised in other comprehensive income (net), including:		136.5	-26
- cash flow hedging	20	137.8	-26.3
- actuarial gain/(loss) relating to post-employment benefits		-1.3	0.3

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 (24% tax rate) and the petroleum tax system (additional tax rate of 54%). In 2018, the tax rates will be 23% under the corporate income tax regime and 55% under the petroleum tax regime, 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
	2017	2016
Profit before tax	2447.7	1579.4
Income tax at 19%	465.1	300.1
Permanent differences:	43.8	15.1
- VAT expense	-	7.5
- interest on past-due public charges	1.3	1.2
- other permanent differences	42.5	6.4
Tax effect of tax losses deducted in the period	-	-0.4
Tax effect of share in profit of equity-accounted entities	-0.6	-0.6
Adjustments disclosed in current year related to tax for previous years	-0.5	-1
Difference resulting from the application of tax rates other than 19%:	267.9	252.9
- Norway	266	249.1	(1)
- Lithuania	2.1	1.1
- Cyprus	-0.2	2.7
Other differences	0.2	-1.9
Income tax	775.9	564.2

(1) Including the tax effect of a PLN 80.9m reduction in deferred tax assets related to the tax investigation at LOTOS Exploration and Production Norge AS.

10.3 Deferred income tax
		Statement of financial position		Change in
	Note	December 31st 2017	December 31st 2016
Deferred tax assets		415.4	596	-180.6
Deferred tax liabilities		-277.7	-57.4	-220.3
Net deferred tax assets/(liabilities)	10.3.1	137.7	538.6	-400.9
Exchange differences on translating deferred tax of foreign operations				56.2
Deferred tax disclosed under other comprehensive income/(loss), net	10.1			136.5
Deferred tax expense charged to net profit or loss	10.1			-208.2

Taxable temporary differences are expected to expire in 2018–2083.
As at December 31st 2017, unrecognised tax assets on account of tax losses were PLN 0.2m (December 31st 2016: PLN 0.3m).

10.3.1 Deferred tax assets and liabilities
	Note	December 31st 2016	Deferred tax disclosed under other comprehensive income/(loss), net	Deferred tax disclosed under other comprehensive income/(loss), net	Exchange differences on translating deferred tax of foreign operations	December 31st 2017
Deferred tax assets
Employee benefit obligations		56.7	1.6	1.3	-0.5	59.1
Inventory write-downs		0.5	0.4	-	-	0.9
Impairment losses on property, plant and equipment and other intangible assets		344.5	6.1	-	-48.9	301.7
Negative fair value of derivative financial instruments		14.3	-8.3	-	-	6
Exchange differences on revaluation of foreign-currency items		2.6	-2.6	-	-	-
Impairment losses on receivables		16.4	-8.5	-	-	7.9
Finance lease liabilities		33.1	-6.7	-	-	26.4
Provisions for/assets related to decommissioning of oil and gas extraction facilities and site restoration		474.4	89	-	-64	499.4
Unrealised margin assets		5.6	1.1	-	-	6.7
Tax losses carried forward		344.2	-328.9	-	-13	2.3
Other provisions		11.1	-1.9	-	-	9.2
Cash flow hedge accounting		190.7	-	-137.8	-	52.9
Other		18.2	-3.6	-	0.6	15.2
		1512.3	-262.3	-136.5	-125.8	987.7
Deferred tax liabilities
Difference between current tax base and carrying amount of property, plant and equipment and other intangible assets		767.2	7.9	-	-61.1	714
Difference between current tax value and carrying amount of settlements under joint operations (Norwegian fields)		53.9	-33.6	-	-4.8	15.5
Positive fair value of derivative financial instruments		11.9	-3.5	-	-	8.4
Exchange differences on revaluation of foreign-currency items		-	2.3	-	-	2.3
Tax liabilities associated with acquired exploration and production licences in Lithuania		17.9	-1.5	-	-1	15.4
Accrued interest		84.3	-37.7	-	-	46.6
Other		38.5	12	-	-2.7	47.8
		973.7	-54.1	-	-69.6	850
Net deferred tax assets/(liabilities)	10.3	538.6	-208.2	-136.5	-56.2	137.7

Briefcase