OJSC Oil Company Rosneft Consolidated Financial Statements

OJSC Oil Company Rosneft
Notes to Consolidated Financial Statements (continued)
20. Income and Other Taxes (continued)
Although the Company does not pay tax on a consolidated basis, a reconciliation of expected income
tax expense to the actual tax expense for the years ended December 31 is as follows:
2008 2007 2006
Income before income taxes and minority
interest 13,119 17,789 4,165
Statutory income tax rate 24.00% 24.00% 24.00%
Theoretical income tax expense 3,149 4,269 1,000
Add /(deduct) tax effect of:
Change in valuation allowance 102 (42) (94)
Effect of income tax preferences (167) (135) (77)
Previously unrecognized deferred tax asset – – (539)
Adjustments of income tax for prior periods 7 (36) (30)
Unrecognized income tax benefits (4) 18 –
Effect from the change of income tax rate (956) – –
Permanent accounting differences arising from:
Non-deductible items, net 373 202 86
Foreign exchange effects, net (814) 276 113
Accrued tax interest 56 177 –
Other 158 177 81
Income taxes 1,904 4,906 540
Effect of income tax preferences, in the above table, represents the impact of lower income tax rates
for Rosneft and certain of its subsidiaries under applicable regional laws. These laws provide that the
income tax exemptions, ranging from 3.5% to 4%, are granted to the oil and gas producing companies
which make capital investments, agreed with regional administrations, within the respective region
and participate in various social projects. These exemptions are granted on an annual basis.
Effect from the change of income tax rate in the above table represents the impact of statutory income
tax rate decrease from 24% to 20%. Tax law amendments were enacted by Federal Law No.305-FZ on
December 30, 2008, and are effective January 1, 2009.
As of December 31, 2008 and December 31, 2007 the Company analyzed its tax positions for
uncertainties affecting recognition and measurement thereof. Following the analysis, the Company
believes that it is more likely than not that most tax positions stated in the income tax return that
reduce the income tax base would be sustained upon the examination by the tax authorities. This is
supported by the results of the examinations of the income tax returns which have been conducted to
date.
During 2007 and 2008, the tax authorities held tax examinations in the Company and its subsidiaries for
2004-2007 fiscal years. The Company does not expect results of examinations to have a material
impact on the Company's consolidated financial statements. Tax years or periods prior to 2004 are not
subject to examination.
42