Arrow Prospectus - PGS

ARROW SEISMIC ASA – INITIAL PUBLIC OFFERING
Deferred tax assets/liabilities
There are potential deferred tax assets of $2,574,177 relating to the Arrow group companies based on the draft
figures above. The calculation of these potential deferred tax assets is included below:
Company Tax losses Decelerated
capital
allowances
Foreign
exchange
losses/
(gains)
disregarded
Total deferred
tax asset/
(liability)
$USD $USD $USD $USD
Arrow Seismic Limited 31,025 - - 31,025
Arrow Seismic Invest I Limited 988,192 721,268 225,646 1,935,106
Arrow Seismic Invest II Limited 200,485 - (269,519) (69,034)
Arrow Seismic Invest III Limited 359,070 - 86,661 445,731
Arrow Seismic Invest IV Limited - 163,315 - 162,315
Arrow Seismic Invest V Limited - - - -
Arrow Seismic Invest VI - - - -
Deferred tax assets represent tax adjustments on timing differences, or losses after adjustment, which may reduce
future years’ tax. The UK accounting rules specify that specific rules under which such assets can be recognised
in the accounts of a company. In the case of the group companies these recognition criteria have not been met for
two reasons:
1) There is not sufficient evidence to demonstrate that there will be future profits against which a
deduction may be claimed to realise the value of the deferred tax assets.
2) Should the group companies enter into the UK tonnage tax regime, these losses, and timing differences
on deferred tax assets, would no longer be available to offset against profits.
There is a deferred tax liability arising on a hedging arrangement. This is subject to special UK rules as hedge
accounting has not been implemented with respect to the period of review, and as such profits on the derivative,
which are asymmetrically matched against a balance sheet asset, are not taxed until realised.
UK Tonnage Tax Status
The group have entered into correspondence with UK HM Revenue and Customs (‘HMRC’) through their legal
advisors regarding entry into UK Tonnage Tax. Initially a pre-entry clearance letter was sent to the Tonnage Tax
Unit of HMRC in June 2006 in respect of ASL, ASI I, ASI II ASI III and ASI IV. There has been further
subsequent correspondence regarding the various qualifying conditions for entry into Tonnage Tax. The
inspectors initially concluded that based on the information received the ships should be qualifying, and that they
await the formal Tonnage Tax election. Due to the expansion of the UK business and a change to the UK
corporate structure by the formation of two new subsidiary companies, an updated pre-clearance letter was sent
to HMRC including the additional information and explaining the incorporation of the two new subsidiary
companies which would become part of the proposed UK Tonnage Tax group. The inspectors’ confirmation of
eligibility has been received. The group should currently qualify for entry into the UK Tonnage Tax regime in
accordance with current legislation, having obtained pre-clearance confirmation from HMRC. The group are
now free to elect into the Tonnage Tax regime before 7 July 2007, see chapter 2.2.16. Failing to elect into the
regime by June 2007 may make future entry into the regime impossible.
Once the group elect to enter into UK Tonnage Tax then those group companies which operate qualifying ships
would be subject to the UK tonnage tax rules on calculation of taxable profits for their qualifying shipping
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