Income Tax Accounting Policy
Income tax expense represents the sum of the tax currently payable and deferred tax. Interest and penalties relating to tax are also included in income tax expense.
The tax currently payable is based on the taxable profits for the period. Taxable profit differs from net profit as reported in the income statement because it excludes items of income or expense that are taxable or deductible in other periods and it further excludes items that are never taxable or deductible. BP’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.
Deferred tax liabilities are recognized for all taxable temporary differences:
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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.
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In respect of taxable temporary differences associated with investments in subsidiaries, jointly controlled entities and associates, except where BP is able to control the timing of the reversal of the temporary differences and it is probable that the temporary differences will not reverse in the foreseeable future.
Deferred tax assets are recognized for all deductible temporary differences, carry-forward of unused tax credits 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 credits and unused tax losses can be utilized:
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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.
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In respect of deductible temporary differences associated with investments in subsidiaries, jointly controlled entities and associates, deferred tax assets are recognized only 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 carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date.
Tax relating to items recognized in other comprehensive income is recognized in other comprehensive income and tax relating to items recognized in equity is recognized directly in equity and not in the income statement.
Source: BP PLC, Annual Report
Income Tax Expense (Benefit)
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BP PLC, income tax expense (benefit), continuing operations
Source: Based on data from BP PLC Annual Reports
| Item |
Description |
The company |
| Current tax |
The component of income tax expense for the period representing amounts of income taxes paid or payable (or refundable) for the period for all income tax obligations as determined by applying the provisions of relevant enacted tax laws to relevant amounts of taxable income (loss) from continuing operations. |
BP PLC's current tax declined from 2008 to 2009 but then slightly increased from 2009 to 2010.
|
| Deferred tax |
The component of income tax expense for the period representing the net change in the entity's deferred tax assets and liabilities pertaining to continuing operations. |
BP PLC's deferred tax increased from 2008 to 2009 but then declined significantly from 2009 to 2010.
|
| Tax on profit (loss) |
The sum of the current income tax expense (benefit) and the deferred income tax expense (benefit) pertaining to pretax income (loss) from continuing operations; income tax expense (benefit) may include interest and penalties on tax uncertainties based on the entity's accounting policy. |
BP PLC's tax on profit (loss) declined from 2008 to 2009 and from 2009 to 2010.
|
Effective Income Tax Rate (EITR)
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BP PLC, effective income tax rate (EITR) reconciliation
Source: Based on data from BP PLC Annual Reports
| Item |
Description |
The company |
| Effective tax rate |
A ratio calculated by dividing the reported amount of income tax expense attributable to continuing operations for the period by GAAP-basis pretax income from continuing operations. |
BP PLC's effective tax rate declined from 2008 to 2009 and from 2009 to 2010.
|
Deferred Tax Assets (Liabilities), Net
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BP PLC, deferred tax assets (liabilities), net
Source: Based on data from BP PLC Annual Reports
| Item |
Description |
The company |
| Deferred tax asset |
The aggregate tax effects as of the balance sheet date of all future tax deductions arising from temporary differences between tax basis and generally accepted accounting principles basis recognition of assets, liabilities, revenues and expenses, which can only be deducted for tax purposes when permitted under enacted tax laws; net of deducting the allocated valuation allowance, if any, to reduce such amount to net realizable value. |
BP PLC's deferred tax asset increased from 2008 to 2009 and from 2009 to 2010.
|
| Net deferred tax asset (liability) |
For entities that net deferred tax assets and tax liabilities, represents the unclassified net amount of deferred tax assets and liabilities as of the balance sheet date, which result from applying the applicable enacted tax rate to net temporary differences and carryforwards pertaining to assets or liabilities. A temporary difference is a difference between the tax basis of an asset or liability and its carrying amount in the financial statements prepared in accordance with generally accepted accounting principles that will reverse in ensuing periods. |
BP PLC's net deferred tax asset (liability) declined from 2008 to 2009 but then increased from 2009 to 2010 exceeding 2008 level.
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