ANNUAL REPORT 2005 - Lukoil

FINANCIAL ACCOUNTS
The following table sets out the tax effects of each type of temporary differences which give rise to deferred income tax
assets and liabilities:
As of
December 31, 2005
As of
December 31, 2004
Accounts receivable 15 18
Long-term liabilities 145 111
Inventories 5 29
Property, plant and equipment 131 115
Accounts payable 27 19
Long-term investments 3 5
Operating loss carry forwards 121 131
Other 69 51
Total gross deferred income tax assets 516 479
Less valuation allowance (134) (70)
Deferred income tax assets 382 409
Property, plant and equipment (1,747) (714)
Accounts payable (8) (5)
Accounts receivable (9) (8)
Long-term liabilities (117) (72)
Inventories (30) (17)
Long-term investments (66) (83)
Other (20) (17)
Deferred income tax liabilities (1,997) (916)
Net deferred income tax liability (1,615) (507)
As a result of business combinations, during 2005 the Group recognised a net deferred tax liability of $923 million.
As of December 31, 2005, retained earnings of foreign subsidiaries included $7,066 million for which deferred taxation
has not been provided because remittance of the earnings has been indefinitely postponed through reinvestment and,
as a result, such amounts are considered to be permanently invested. The amount of deferred tax liability on this amount
is not practicable to calculate.
In accordance with SFAS No. 52 "Foreign currency translation" and SFAS No. 109, "Accounting for Income Taxes," deferred
tax assets and liabilities are not recognized for exchange rate effects resulting from the translation of transactions and
balances from the Russian ruble to the US dollar using historical exchange rates. Also, in accordance with SFAS No. 109,
no deferred tax assets or liabilities are recognized for the effects of the related statutory indexation of property, plant and
equipment.
Based upon the level of historical taxable income and projections for future taxable income over the periods in which the
deferred income tax assets are deductible, management believes it is more likely than not that Group companies will
realize the benefits of the deductible temporary differences and loss carry forwards, net of existing valuation allowances
as of December 31, 2005 and 2004.
As of December 31, 2005, the Group had operating loss carry forwards of $475 million of which $1 million expire during
2010, $36 million expire during 2013, $38 million expire during 2014, $21 million expire during 2015, and $379 million
have indefinite carry forward.
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