Annual Report 2010

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NOTES TO THE FINANCIAL STATEMENTS OF THE GROUP continued – NOTE 12 The tax charge relating to components of other comprehensive income is as follows: 2010 Before tax Exchange diﬀerences on foreign operations Cash ﬂow hedges Available for sale ﬁnancial assets Other comprehensive income Current tax Deferred tax -43,972 -378 53,128 8,778 Tax charge/credit – 238 -2,009 -1,771 – -1,771 -1,771 The deferred tax charge amounting to TUSD 1,771 (TUSD 19,064) has been recorded directly in other comprehensive income. Tax liability current and deferred Corporation tax - France - Norway - Netherlands - Indonesia - Russia - Tunisia - Sweden - United Kingdom - Switzerland - Congo (Brazzaville) - Malaysia - Vietnam - Other Total corporation tax liability Petroleum tax - United Kingdom Total petroleum tax liability Total tax liability Current tax liability 2010 9,049 20,856 6,042 260 7 1,934 1,531 – – – – – – 39,679 – – 39,679 2009 1,008 1,780 5,373 1,939 -896 7,496 2,473 1,605 92 – – – – 20,870 – – 20,870 Deferred tax liability 2010 32,594 517,962 4,512 4,698 78,317 658 – – – – 10,708 – 1,246 650,695 – – 650,695 2009 39,012 333,637 7,566 14,034 78,060 2,189 – 195,298 – 4,232 8,163 4,043 1,092 687,326 56,320 56,320 743,646 Unrecognised tax losses The Group has Dutch tax loss carry forwards, including tax losses in the current ﬁnancial year, of MUSD 38.5 which in part are not yet assessed. The majority of the tax losses can be utilised up to 9 years. A deferred tax asset relating to the tax loss carry forwards has not been recognised as at 31 December 2010 due to the uncertainty as to the timing and the extent of their utilisation. This treatment is consistent with the comparative year’s accounts. Other During 2005 the Swedish tax authorities (Skatteverket) conducted a tax audit of Lundin Petroleum AB for the ﬁnancial years 2002 to 2003. The tax authorities disallowed a portion of expenses recharged to Lundin Petroleum AB by Group companies for costs associated with management services and certain other fees. As Lundin Petroleum AB is in a tax loss position, this disallowance of the expenses reduces the tax losses carried forward but does not result in a current tax charge. The tax losses incurred have not been recorded as deferred tax assets due to the uncertainty as to the timing of their utilisation. The decision was appealed to the County Administrative Court in Stockholm and an extension for the payment of the penalty tax was obtained. In its decision of 15 December 2008, the County Administrative Court partly overruled the decision of the tax authorities. However, the full deduction of management fees and certain other fees was rejected. The decision was appealed to the Administrative Court of Appeal with regard to the deduction of management fees and the penalty tax as the Company believes that the management costs are a valid charge to the Parent Company of the Lundin Petroleum Group and that penalty tax should not be levied. In 2010 the Administrative Court of appeal maintained the ruling of the County Administrative Court. Following the decision of the court the penalty tax of TUSD 681 has been paid during 2010. Lundin Petroleum has requested permission to appeal to the Supreme Administrative Court and is now awaiting a response to such request. After tax -43,972 -140 51,119 7,007 Before tax 74,763 47,583 -19,158 103,188 2009 Tax charge/credit – -21,073 2,009 -19,064 – -19,064 -19,064 After tax 74,763 26,510 -17,149 84,124 NOTE 13 – DISCONTINUED OPERATIONS (TUSD) Specification of deferred tax assets and tax liabilities 1 Deferred tax assets Unused tax loss carry forwards Fair value of ﬁnancial instruments Other deductible temporary diﬀerences Deferred tax liabilities Accelerated allowances Capitalised acquisition cost Deferred tax on excess values Other taxable temporary diﬀerences 31 December 2010 29,183 1,716 2,790 33,689 581,788 1,088 77,936 8,506 669,318 1 31 December 2009 217,757 4,671 3,662 226,090 859,485 1,173 78,675 2,553 941,886 Discontinued operations – United Kingdom Net sales Other operating income Operating income Production costs Depletion costs Exploration costs General, administration and depreciation expenses Operating profit Financial income Financial expense Profit before tax Tax Net result from discontinued operations Gain on sale of assets Net result from discontinued operations 2010 62,567 1,983 64,550 -32,030 -11,362 -61 -323 20,774 360 -1,224 19,910 -8,988 10,922 358,070 368,992 2009 228,111 5,906 234,017 -140,036 -51,778 -6,149 -135 35,919 32 -24,398 11,553 -2,816 8,737 – 8,737 The speciﬁcation of deferred tax assets and tax liabilities agree to the face of the balance sheet due to the netting oﬀ of balances in the balance sheet when they relate to the same jurisdiction. The deferred tax asset is primarily relating to tax loss carried forwards in Norway for an amount of TUSD 15,828 (TUSD 142,220) and the Netherlands for an amount of TUSD 12,732 (TUSD 15,209). The balance for the comparative period also includes unused tax loss carry forwards in the United Kingdom for an amount of TUSD 56,476. Deferred tax assets in relation to tax loss carried forwards are only recognised in so far that there is a reasonable certainty as to the timing and the extent of their realisation. The deferred tax liability arises mainly on accelerated allowances, being the diﬀerence between the book and the tax value of oil and gas properties and tax on the excess value of the acquired assets in Russia. During the ﬁrst quarter of 2010, Lundin Petroleum announced its intention to spin-oﬀ the United Kingdom (UK) business. The spin-oﬀ was completed on 6 April 2010 with the sale of the UK business in exchange for shares in the newly incorporated company, EnQuest, and the subsequent distribution of the EnQuest shares received to Lundin Petroleum shareholders on 9 April 2010. The results of the UK business are included in the Lundin Petroleum accounts up until the end of the ﬁrst quarter of 2010 and are shown as discontinued operations. 80 Lundin Petroleum ANNUAL REPORT 2010

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