6.3.9Income Tax

The relationship between the Company’s income tax expense and profit before income tax (referred to as ‘Effective tax rate’) can vary significantly from period to period considering, among other factors, (a) changes in the blend of income that is taxed based on gross revenues versus profit before taxes and (b) the different statutory tax rates in the location of the Company’s operations (c)  the possibility to recognize deferred tax assets on tax losses to the extent that suitable future  taxable profits will be available. Consequently, income tax expense does not change proportionally with income before income taxes. Significant decreases in profit before income tax typically lead to a higher effective tax rate, while significant increases in profit before income taxes can lead to a lower effective tax rate, subject to the other factors impacting income tax expense noted above. Additionally, where a deferred tax asset is not recognized on a loss carry forward, the Effective Tax Rate is impacted by the unrecognized tax loss.

The components of the Company’s (provision) benefit for income taxes were as follows:

Income tax recognised in the consolidated Income Statement

Note

2015

2014

Corporation tax on profits for the year

(31)

(47)

Adjustments in respect of prior years

(1)

(3)

Total current income tax

(32)

(50)

Deferred tax

6.3.16

6

24

Total

(26)

(26)

The Company’s operational activities are subject to taxation at rates which range up to 35% (2014: 35%).

The respective tax rates, including fiscal privileges in several countries, tax-exempt profits and non-deductible costs and releases, resulted in an effective tax on continuing operations of 41.4% (2014 : 4.7%).
The reconciliation of the effective tax rate is as follows:

Reconciliation of total income tax charge

2015

2014

%

%

Profit/(Loss) before tax

137

678

Share of profit of equity-accounted investees

73

117

Profit/(Loss) before tax and share of profit of equity-accounted investees

64

561

Income tax using the domestic corporation tax rate (25% for Netherlands)

25%

(16)

25%

(140)

Tax effects of :

Different statutory taxes related to subsidiaries operating in other juridictions

(65%)

41

(19%)

109

Withholding taxes and taxes based on deemed profits

24%

(15)

4%

(22)

Non-deductible expenses

131%

(84)

16%

(88)

Non-taxable income

(110%)

70

(17%)

97

Adjustments related to prior years

1%

(1)

1%

(3)

Effects of unprovided deferred tax and tax credits

34%

(22)

(3%)

19

Movements in tax risks provision

0%

0

0%

2

Total tax effects

16%

(10)

(20%)

114

Total of tax charge on the consolidated Income Statement

41%

(26)

5%

(26)

The 2015 Effective Tax Rate of the Company was primarly impacted by unrecognized deferred tax assets on current tax losses.

With respect to the annual effective tax rate calculation for the year 2015, a significant portion of the income tax expense of the Company was generated in countries in which income taxes are imposed on gross revenues, with the most significant one being Angola. Conversely, the most significant countries in which the Company operated during this period that impose income taxes based on income before income tax include the Netherlands, Monaco, Switzerland and the U.S.

Details of the withholding taxes and other taxes are as follows:

Withholding taxes and taxes based on deemed profits

2015

2014

Withholding Tax and Overseas Taxes
(per location)

Withholding tax

Taxes based on deemed profit

Total

Withholding tax

Taxes based on deemed profit

Total

Angola

(14)

-

(14)

(13)

-

(13)

Equatorial Guinea

0

-

0

0

-

0

Malaysia

0

-

0

0

-

0

Brazil

-

0

0

0

(8)

(8)

Other1

0

(1)

(1)

(1)

-

(1)

Total withholding and overseas taxes

(14)

(1)

(15)

(14)

(8)

(22)

  • 1 other includes Myanmar, Nigeria and Indonesia

Tax returns and tax contingencies

The Company files federal and local tax returns in several jurisdictions throughout the world. Tax returns in the major jurisdictions in which the Company operates are generally subject to examination for periods ranging from three to six years. Tax authorities in certain jurisdictions are examining tax returns and in some cases have issued assessments. The Company is defending its tax positions in those jurisdictions. The Company provides for taxes that it considers probable of being payable as a result of these audits and for which a reasonable estimate may be made. While the Company cannot predict or provide assurance as to the final outcome of these proceedings, the Company does not expect the ultimate liability to have a material adverse effect on its consolidated statement of financial position or results of operations, although it may have a material adverse effect on its consolidated cash flows.

Each year management completes a detailed review of uncertain tax positions across the Company and makes provisions based on the probability of the liability arising. The principal risks that arise for the Company are in respect of permanent establishment, transfer pricing and other similar international tax issues. In common with other international groups, the conflict between the Company’s global operating model and the jurisdictional approach of tax authorities often leads to uncertainty on tax positions.

As a result of the above, in the period, the Company recorded a net tax increase of US$ 13 million in respect of ongoing tax audits and in respect of the Company’s review of its uncertain tax positions. This amount is in relation of uncertain tax position concerning various taxes other than corporate income tax. The increase arises from both adjustments that the Company has agreed with the relevant tax authorities and re-estimates that it has made. It is possible that the ultimate resolution of these matters could result in tax charges that are materially higher or lower than the amount provided.

The Company conducts operations through its various subsidiaries in a number of countries throughout the world. Each country has its own tax regimes with varying nominal rates, deductions and tax attributes. From time to time, the Company may identify changes to previously evaluated tax positions that could result in adjustments to its recorded assets and liabilities. Although the Company is unable to predict the outcome of these changes, it does not expect the effect, if any, resulting from these adjustments to have a material adverse effect on its consolidated statement of financial position, results of operations or cash flows.