Annual Report 2011 - PGS

Notes to the consolidated financial statements
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 10 - Income Taxes
The net income tax expense (benefit) from continuing operations consists of the following:
Years ended December 31,
(In thousands of dollars) 2011 2010 2009
Current taxes 1,238 18,868 50,066
Deferred taxes 28,806 (4,965) 1,876
Total income tax expense (benefit) 30,044 13,903 51,942
The net income tax expense (benefit) from discontinuing operations consists of the following:
Years ended December 31,
(In thousands of dollars) 2011 2010 2009
Current taxes --- 6,677 (108)
Deferred taxes (307) (5,360) 6,221
Total income tax expense (benefit) (307) 1,317 6,113
The deferred tax liability (asset), recognized in the consolidated statement of comprehensive income, is as follows:
Years ended December 31,
(In thousands of dollars) 2011 2010
Interest rate hedging (Note 26) (7,150) (7,873)
The income tax expense differs from the amounts computed when applying the Norwegian statutory tax rate to income (loss)
before income taxes as a result of the following:
Years ended December 31,
(In thousands of dollars) 2011 2010 2009
Income before income tax expense from continuing operations 64,513 (8,598) 216,522
Norwegian statutory rate 28% 28% 28%
Provision for income taxes at statutory rate 18,064 (2,407) 60,626
Increase (reduction) in income taxes from:
Effects of tax rates other than statutory tax rate in Norway (1,177) (2,865) (5,323)
Tax exempt income inside tonnage tax regimes 1,101 (5,631) (49,999)
Effects on tax expense from tonnage tax regime entry/exit old tonnage tax
--- 986 (31,617)
regime dispute
Impairment Arrow vessels which are non-deductible --- 23,107 45,186
Change in assessment on recoverability of prepaid income tax in Brazil (7,889) (12,332) 21,000
Foreign taxes not deductible or subject to credit 4,293 5,857 7,775
Currency effects (a) 971 2,622 2,261
Change in tax contingencies recognized as tax expense (benefit) (5,352) 1,926 (7,311)
Change in unrecognized deferred tax assets including current year losses
where no benefit was provided 7,085 2,805 18,955
Prior period adjustments 7,444 (2,678) (7,446)
Other permanent items 5,504 2,513 (2,165)
Income tax expense 30,044 13,903 51,942
(a) Relates to changes in tax positions in local currency for US Dollar functional currency companies.
Comments on selected line items in the preceding table:
Norway – exit old tonnage tax regime – tax dispute
Until 2002, PGS Shipping AS and PGS Shipping (Isle of Man) Ltd. were taxed under the Norwegian tonnage tax regime.
In 2003 it was decided to exit with effect from January 1, 2002. The issue with the Norwegian Central Tax Office for Large
Enterprises (“CTO”) was related to the assessment of the fair value of the shares in PGS Shipping (IoM) Ltd. upon exit in 2002.
In 2010, the dispute was settled, increasing deferred tax expense by approximately $1.0 million.
Impairment Arrow vessels
The net impairments relating to the Arrow vessels (see Note 18), which are under the UK tonnage tax regime, are nondeductible
and have as such not benefited the reported income tax expense.
Prepaid income tax in Brazil
In 2009, the Company introduced a valuation allowance relating to prepaid income tax expense in Brazil, amounting to
$21.0 million, due to uncertainty of future utilization of these prepaid taxes. In 2011 and 2010, the Company re-assessed the
recoverability of $7.9 million and $12.3 million, respectively, of the prepaid income tax, since it was more likely than not that the
amount will be utilized.
17 PGS ANNUAL REPORT 2011
88 PGS Annual Report 2011