Mandatory decrease in profit/(increase in loss) comprises current income tax (CIT) and deferred income tax. The current portion of income tax is calculated based on net profit/(loss) (taxable income) for a given financial year. Net profit/(loss) for tax purposes differs from net profit/(loss) for accounting purposes due to temporary differences between revenue amounts calculated for these two purposes, including income which is taxable and costs which are tax- deductible in a period other than the current accounting period, as well as permanent differences attributable to income and cost which will never be accounted for in tax settlements. Tax expense is calculated based on tax rates effective in a given financial year.
For the purposes of financial reporting, tax liabilities are calculated taking into account all temporary differences existing as at the end of the reporting period between the tax base of assets and liabilities and their carrying amounts disclosed in the financial statements.
Deferred tax liability is recognised for all taxable temporary differences:
- except to the extent that the deferred tax liability arises from the initial recognition of goodwill or the initial recognition of an asset or liability in a transaction which is not a business combination and which, at the time of its execution, affects neither accounting profit before tax nor taxable income or tax loss, and
- in the case of taxable temporary differences associated with investments in subsidiaries, jointly-controlled entities or associates and interests in joint ventures, unless the investor is able to control the timing of reversal of temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are disclosed in relation to all deductible temporary differences, unused tax assets, and unused tax losses brought forward, in the amount of the probable taxable income which would enable these differences, assets and losses to be used:
- except to where the deferred tax assets related to deductible temporary differences arise from the initial recognition of an asset or liability in a transaction which is not a business combination and which, at the time of its execution, affects neither accounting profit before tax nor taxable income or tax loss, and
- in the case of deductible temporary differences associated with investments in subsidiaries, jointly-controlled entities or associates and interests in joint ventures, the related deferred tax assets are recognised in the statement of financial position to the extent it is probable that in the foreseeable future the temporary differences will be reversed and taxable income will be generated which will enable the deductible temporary differences to be offset.
Notwithstanding the above rules, the Group recognises deferred tax liabilities with respect to temporary differences related to the rights to use assets and assets related to future decommissioning of oil and gas extraction facilities, as well as deferred tax assets with respect to temporary differences related to lease liabilities and provisions for the decommissioning and restoration costs.
The carrying amount of deferred tax assets is revised as at the end of each reporting period and is subject to appropriate reduction to the extent it is no longer probable that taxable income sufficient for its partial or full realisation would be generated.
Deferred tax assets and deferred tax liabilities are measured using tax rates expected to be effective at the time of realisation of particular asset or liability, based on tax rates (and tax legislation) effective as at the end of the reporting period or tax rates (and tax legislation) which as at the end of the reporting period are certain to be effective in the future. The effect of deferred tax is recognised in profit or loss for the period, with the exception of taxes arising from transactions or events, which are recognised in other comprehensive income or directly in equity, and taxes arising from business combinations.
Deferred tax assets and deferred tax liabilities are presented in the statement of financial position in the amount obtained after they are offset for particular consolidated entities.