BP Annual Report and Form 20-F 2011 - Company Reporting

Notes on financial statementshttp://www.bp.com/downloads/taxation18. Taxation continuedDeferred tax$ millionIncome statementBalance sheet2011 2010 2009 2011 2010Deferred tax liabilityDepreciation 4,511 1,565 1,983 33,038 27,309Pension plan surpluses – 38 (6) – 469Other taxable temporary differences 129 1,178 978 5,683 5,5384,640 2,781 2,955 38,721 33,316Deferred tax assetPension plan and other post-retirement benefit plan deficits 388 179 180 (2,872) (2,155)Decommissioning, environmental and other provisions (1,324) (8,151) 86 (14,565) (13,296)Derivative financial instruments 24 (56) 80 (274) (298)Tax credits (401) (1,088) (516) (2,549) (2,118)Loss carry forward (218) 24 402 (1,295) (943)Other deductible temporary differences 2,040 (1,882) (567) (2,699) (4,126)509 (10,974) (335) (24,254) (22,936)Net deferred tax charge (credit) and net deferred tax liability 5,149 (8,193) 2,620 14,467 10,380Of which – deferred tax liabilities 15,078 10,908– deferred tax assets 611 528$ millionAnalysis of movements during the year 2011 2010At 1 January 10,380 18,146Exchange adjustments 55 3Charge (credit) for the year on profit 5,149 (8,193)Charge (credit) for the year in other comprehensive income (1,649) 244Charge (credit) for the year in equity (7) 64Acquisitions 692 187Reclassified as assets held for sale (140) (67)Deletions (13) (4)At 31 December 14,467 10,380Deferred tax assets are recognized to the extent that it is probable that taxable profit will be available against which the deductible temporary differencesand the carry-forward of unused tax credits and unused tax losses can be utilized.At 31 December 2011, the group had approximately $4.6 billion (2010 $3.9 billion) of carry-forward tax losses that would be available to offsetagainst future taxable profit. A deferred tax asset has been recognized in respect of $3.8 billion of losses (2010 $3.0 billion). No deferred tax asset hasbeen recognized in respect of $0.8 billion of losses (2010 $0.9 billion). In 2011, a current tax benefit of $0.1 billion arose relating to losses utilized on whicha deferred tax asset had not previously been recognized (2010 nil). Substantially all the tax losses have no fixed expiry date.At 31 December 2011, the group had approximately $18.2 billion of unused tax credits predominantly in the UK and US (2010 $13.9 billion).At 31 December 2011 there is a deferred tax asset of $2.5 billion in respect of unused tax credits (2010 $2.1 billion). No deferred tax asset has beenrecognized in respect of $15.7 billion of tax credits (2010 $11.8 billion). In 2011, a current tax benefit of $0.1 billion arose relating to tax credits utilized onwhich a deferred tax asset had not previously been recognized (2010 $0.3 billion).The UK tax credits, arising in UK branches overseas with no deferred tax asset, amounting to $13.0 billion (2010 $9.9 billion) do not have afixed expiry date. In addition there are also temporary differences in overseas branches of UK companies with no deferred tax asset recognized. At31 December 2011 the unrecognized deferred tax amounted to $0.9 billion (2010 $0.9 billion). These credits and temporary differences arise in UKbranches predominantly based in high tax rate jurisdictions and so are unlikely to have value in the future as UK taxes on these overseas branches arelargely mitigated by the double tax relief on the local foreign tax.The US tax credits with no deferred tax asset amounting to $2.7 billion (2010 $1.9 billion) expire 10 years after generation, and the majority expirein the period 2014-2021.The group recognized significant costs in 2010 in relation to the Gulf of Mexico oil spill and in 2011 has recognized certain recoveries relating to theincident as well as further costs. Tax has been calculated on the expenditures that are expected to qualify for tax relief, and on the recoveries, at the USstatutory tax rate. A deferred tax asset has been recognized in respect of provisions for future expenditure that are expected to qualify for tax relief. This isincluded under the heading decommissioning, environmental and other provisions.The other major components of temporary differences at the end of 2011 relate to tax depreciation, provisions, including items relating to the Gulfof Mexico oil spill, US inventory holding gains (classified as other taxable temporary differences) and pension plan and other post-retirement benefit plandeficits.At 31 December 2011, there were no material temporary differences associated with investments in subsidiaries and equity-accounted entities forwhich deferred tax liabilities have not been recognized.In 2011, the enactment of a 12% increase in the UK supplementary charge on oil and gas production activities in the North Sea increased thedeferred tax charge in the income statement by $713 million of which $683 million relates to the revaluation of the opening deferred tax balance.Also in 2011, the enactment of a 2% reduction in the rate of UK corporation tax to 25% with effect from 1 April 2012 on profits arising fromactivities outside the North Sea reduced the deferred tax charge in the income statement by $120 million. In 2010 the enactment of a 1% reduction in therate of UK corporation tax to 27% with effect from 1 April 2011 similarly reduced the deferred tax charge in the income statement by $86 million.In 2012, legislation to restrict relief for UK decommissioning expenditure from 62% to 50% is expected to be enacted. New legislation is also likelyto be introduced in Australia which would bring BP’s North West Shelf activities into the charge to Petroleum Resource Rent Tax (PRRT) from July 2012.The impacts of both of these changes are currently being assessed.BP Annual Report and Form 20-F 2011 211Financial statements