BP 2006 Annual Report Download - page 133

BP Annual Report and Accounts 2006 131
23 Taxation continued
Reconciliation of the effective tax rate
The following table provides a reconciliation of the UK statutory corporation tax rate to the effective tax rate of the group on profit before taxation from
continuing operations.
$ million
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2006 2005 2004
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Profit before taxation from continuing operations 34,642 31,921 24,966
Tax on profit from continuing operations 12,331 9,473 7,082
Effective tax rate 36% 30% 28%
% of profit before tax from continuing operations
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UK statutory corporation tax rate 30 30 30
Increase (decrease) resulting from
UK supplementary and overseas taxes at higher rates 11 9 8
Tax reported in equity-accounted entities (3) (3) (3)
Adjustments in respect of prior years (2) (3) (1)
Restructuring benefits – (1) (2)
Current year losses unrelieved (prior year losses utilized) (1) (3) (3)
Other 1 1 (1)
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Effective tax rate 36 30 28
Deferred tax $ million
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Income statement Balance sheet
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2006 2005 2004 2006 2005
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Deferred tax liability
Depreciation 1,484 (778) 492 21,463 18,529
Pension plan surplus 173 170 10 1,733 957
Other taxable temporary differences 417 887 (113) 4,439 3,864
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2,074 279 389 27,635 23,350
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Deferred tax asset
Petroleum revenue tax 4121 77 (457) (407)
Pension plan and other post-retirement benefit plan deficits 71 220 92 (1,824) (1,822)
Decommissioning, environmental and other provisions (800) (144) 106 (2,960) (2,033)
Derivative financial instruments (115) (629) – (974) (807)
Tax credit and loss carry forward 220 (245) 6 (662) (253)
Other deductible temporary differences (923) 297 (606) (2,642) (1,585)
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(1,543) (380) (325) (9,519) (6,907)
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Net deferred tax liability 531 (101) 64 18,116 16,443
$ million
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2006 2005 2004
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Analysis of movements during the year
At 1 January 16,443 16,701 16,051
Adoption of IAS 32 and 39 –(112) –
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Restated 16,443 16,589 16,051
Exchange adjustments 175 (178) 358
Charge for the year on ordinary activities 531 (101) 64
Charge for the year in the statement of recognized income and expense 985 214 50
Other movements (18) (81) 178
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At 31 December 18,116 16,443 16,701
Factors that may affect future tax charges
The group earns income in many different countries and, on average, pays taxes at rates higher than the UK statutory rate. The overall impact of these
higher taxes, which include the supplementary charge on UK North Sea profits, is subject to changes in enacted tax rates and the country mix of the
group’s income. The current high oil price environment continues to create conditions that encourage host governments to review their fiscal regimes.
In 2006 the UK supplementary charge was raised to 20% increasing the group’s effective tax rate by 2%. The impact of the additional one-off
deferred tax adjustment relating to this rate change ($460 million) was largely offset by utilization of relieving measures specifically provided in the
legislation.
Under IFRS, the results of equity-accounted entities are reported within the group’s profit before taxation on a post-tax basis. The impact of this
treatment in 2006 has been to reduce the reported effective tax rate by around 3%. This effect is expected to continue for the foreseeable future
assuming similar income levels from the entities.
Going forward, the effective tax rate is expected to be around 37%.
At 31 December 2006, deferred tax liabilities were recognized for all taxable temporary differences:
– Except where the deferred tax liability arises on goodwill that is not tax deductible or the initial recognition of an asset or liability in a transaction that
is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
– In respect of taxable temporary differences associated with investments in subsidiaries, jointly controlled entities and associates, except where the
timing of the reversal of the temporary differences can be controlled by the group and it is probable that the temporary differences will not reverse in
the foreseeable future.