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KUWAIT ENERGY PLC
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 31 December 2015
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3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Taxation
The Group is subject to various forms of taxation in the countries in which it operates. The Group is subject to income
tax within scope of IAS 12 in Egypt and Iraq. At Area A in Egypt, income tax is levied on taxable profits, and in Iraq
at Block 9, Siba and Mansuriya tax is levied on remuneration fees and other income arising under production service
contracts. The primary forms of taxation for all other assets are production related and are deducted at source as
government share of oil in line with production sharing contract terms. These production taxes are not considered to
constitute income tax as defined by IAS 12, and accordingly government share is netted against revenue in line with
the nature of the transaction. The taxation charge represents the sum of current tax and deferred tax.
The computation of the Group’s income tax expense and liability involves the interpretation of applicable tax laws and
regulations in the countries in which it operates. Therefore, judgement is required to determine provisions for income
taxes. To the extent that actual outcomes differ from management’s estimates, income tax charges or credits, and
changes in current and deferred tax assets or liabilities, may arise in future periods.
Current tax
The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the
consolidated statement of income because it excludes items of income or expense that are taxable or deductible in other
years and it further excludes items that are never taxable or deductible. The Group’s liability for current tax is calculated
using tax rates that have been enacted or substantively enacted by the balance sheet date.
Deferred tax
Deferred tax is recognised on differences between the carrying amounts of assets and liabilities in the financial
statements of the relevant subsidiaries and the corresponding tax bases used in the computation of taxable profit, and
are accounted for using the liability method. Deferred tax liabilities are generally recognised for all taxable temporary
differences, and deferred tax assets are generally recognised for all deductible temporary differences to the extent that
it is probable that taxable profits will be available against which those deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial
recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the
taxable profit nor the accounting profit.
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 profits will be available to allow all or part of the asset to be recovered.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year in which the liability
is settled or the asset realised, based on tax rates (and tax laws) that have been enacted or substantively enacted by the
balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would
follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of
its assets and liabilities.
Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against
current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends
to settle its current tax assets and liabilities on a net basis.
4.
CRITICAL ACCOUNTING JUDGEMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY
In the application of the Group’s accounting policies, which are described in note 3, management is required to make
judgements, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent
from other sources. The estimates and associated assumptions are based on historical experience and other factors that
are considered to be relevant. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are
recognised in the year in which the estimate is revised if the revision affects only that year or in the year of the revision
and future years if the revision affects both current and future years.
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