BP 2007 Annual Report Download - page 132

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20 Taxation continued
Factors that may affect future tax charges
The group earns income in many different countries and, on average, pays taxes at rates higher than the rate of UK corporation tax. The overall impact
of these higher taxes, which include the supplementary charge on UK North Sea profits, is subject to changes in enacted tax rates and the country mix
of the group’s income.
The 2007 effective tax rate for the group reflects the impact of the use of capital and other losses in the UK and mainland Europe and audit closure
of a variety of worldwide issues. The enactment of a 2% reduction in the rate of UK corporation tax on profits arising from activities outside the
North Sea reduced the tax charge by $189 million.
Under IFRS, the results of equity-accounted entities are reported within the group’s profit before taxation on a post-tax basis. The impact of this
treatment in 2007 has been to reduce the reported effective tax rate by around 2%. This effect is expected to continue for the foreseeable future
assuming similar income levels from the entities.
At 31 December 2007, deferred tax liabilities were recognized for all taxable temporary differences:
– Except where the deferred tax liability arises on goodwill that is not tax deductible or the initial recognition of an asset or liability in a transaction that
is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
– In respect of taxable temporary differences associated with investments in subsidiaries, jointly controlled entities and associates, except where the
timing of the reversal of the temporary differences can be controlled by the group and it is probable that the temporary differences will not reverse
in the foreseeable future.
At 31 December 2007, deferred tax assets were recognized for all deductible temporary differences, carry forward of unused tax assets and unused
tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences and the carry forward
of unused tax assets and unused tax losses can be utilized:
– Except where the deferred income tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability
in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss.
– In respect of deductible temporary differences associated with investments in subsidiaries, jointly controlled entities and associates, deferred tax
assets are only recognized to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit
will be available against which the temporary differences can be utilized.
The group has around $5.0 billion (2006 $4.9 billion) of carry-forward tax losses, predominantly in Europe, which would be available to offset against
future taxable income. These tax losses do not have a fixed expiry date. At the end of 2007, a net deferred tax asset of $286 million was recognized
on these losses (2006 $216 million). The gross deferred tax asset recognized for the losses was $972 million (2006 $680 million), of which $686
million (2006 $458 million) was offset by deferred tax liabilities. Deferred tax assets are recognized only to the extent that it is considered more likely
than not that suitable taxable income will arise.
At the end of 2007, the group had around $4.1 billion (2006 $2.0 billion) of unused tax credits in the UK and US, in respect of which no net deferred
tax assets have been recognized. A gross deferred tax asset of $820 million has been recognized in 2007 for these credits (2006 $459 million), which
is offset by a gross deferred tax liability associated with unremitted profits from overseas entities in jurisdictions with a lower tax rate than the UK.The
UK tax credits do not have a fixed expiry date. The US tax credits expire ten years after generation. In 2007, $411 million of tax credits were utilized
(2006$828millionand2005$774million).
The major components of temporary differences at the end of the current year are tax depreciation, US inventory holding gains (classified under
other taxable temporary differences) and provisions.
21 Dividends
pence per share cents per share $ million
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2007 2006 2005 2007 2006 2005 2007 2006 2005
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Dividends announced and paid
Preference shares 222
Ordinary shares
March 5.258 5.288 4.522 10.325 9.375 8.500 2,000 1,922 1,823
June 5.151 5.251 4.450 10.325 9.375 8.500 1,983 1,893 1,808
September 5.278 5.324 5.119 10.825 9.825 8.925 2,065 1,943 1,871
December 5.308 5.241 5.061 10.825 9.825 8.925 2,056 1,926 1,855
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20.995 21.104 19.152 42.300 38.400 34.850 8,106 7,686 7,359
Dividend announced per ordinary share,
payable in March 2008 6.813 ––13.525 ––2,554 ––
The group does not account for dividends until they are paid. The accounts for the year ended 31 December 2007 do not reflect the dividend
announced on 5 February 2008 and payable in March 2008; this will be treated as an appropriation of profit in the year ended 31 December 2008.