Arrow Prospectus - PGS

ARROW SEISMIC ASA – INITIAL PUBLIC OFFERING
Rates of UK Corporation tax
The standard rate of UK corporation tax for large companies is currently 30% (for the year commencing 1 April
2007). It is likely given the number of associated companies of the group that each company will be large for UK
corporation tax purposes.
The Draft UK Finance Bill 2007 includes provisions that will reduce this standard rate to 28% from 1 April
2008. These regulations are yet to be enacted by Parliament and remain subject to potential change. There also
exist other relevant amended provisions which if enacted will impact UK corporation tax, particularly with
regard to tax depreciation.
If an accounting period does not coincide with the financial year, the profits for the accounting period are time
apportioned and the appropriate rate applied to each part.
Capital gains
Capital gains on chargeable assets are taxed at normal corporation tax rates. For UK tax purposes a capital gain
is usually calculated on the basis of the excess of the sale proceeds over the original cost, plus any qualifying
subsequent expenditure incurred on the asset. An allowance is allowed with respect to inflation limited to years
from 1982. This may only be used to eliminate a gain and not to create a loss.
When a capital gain arises on the disposal of a ship, the gain may be held over into the tax base cost of a new
business asset if the proceeds received from the disposal of the ship are used to acquire the new asset. The new
asset must in general be acquired in the period beginning twelve months before and ending three years after the
disposal of the ship. The held over gain will then crystallise at the earlier of 10 years from acquisition and the
eventual disposal of the new asset.
Determining trading profits
General
The assessment of trading profits for tax purposes is based on the financial statements in accordance with
generally accepted accounting principles. This includes International Financial Reporting Standards accounts.
Expenses must be incurred wholly and exclusively for the purposes of the trade of the company whose profits
are being assessed. No deduction is allowed for entertainment purposes apart from specific staff entertainment.
Corporate debt and foreign exchange rules
The rules under the corporate debt regime are designed to allow a tax treatment of interest, discounts and
premiums on debt instruments to follow the accounting treatment in most circumstances, subject to certain
exceptions and anti-avoidance provisions.
Most foreign exchange differences are taxable or relievable in accordance with the correct accounting treatment.
Specific rules apply with respect to a hedging function depending on the accounting used.
Tax depreciation (capital allowances)
UK accounting depreciation is generally not allowed as a deduction for tax purposes. This is replaced by
specific capital allowances which are deductible for UK tax purposes. The standard allowance on plant and
machinery is 25% on a reducing balance basis (likely to be 20% from 2008). Most assets with a useful economic
life of 25 years (long life assets) are allowed a different allowance using a declining balance method at an annual
rate of 6% per year (likely to be 10% from 2008). The allowances are generally allowed on a per annum basis
from when the asset is brought into use.
Ships are, however subject to special treatment for capital allowances outside the long life assets regime. This
exemption from the standard long life asset treatment is due to expire on 1 January 2011. For special treatment
to apply ships must be seagoing and over 100 gross registered tons or more.
When a trader incurs expenditure on the provision of a ship for the purpose of a trade, he is regarded and having
incurred that expenditure for the purposes of a separate trade. The expenditure on each ship is recorded
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