Annual report and accounts 2012

Taxation

OAO Severstal and Subsidiaries
Notes to the Consolidated Financial Statements
9. Taxation

for the years ended December 31, 2012, 2011 and 2010
(Amounts expressed in thousands of US dollars, except as otherwise stated)

The following is an analysis of the income tax expense:

 Year ended December 31,
 

2012

2011

2010

Current tax charge

(226,811)

(481,303)

(383,054)

Corrections to prior year's current tax charge

3,325

(4,806)

27,132

Deferred tax (expense)/benefit

(39,999)

20,097

(71,384)

Income tax expense

(263,485)

(466,012)

(427,306)

The following table is a reconciliation of the reported net income tax expense and the amount calculated by applying the Russian statutory tax rate of 20% to reported profit before income tax.

 Year ended December 31,

 

2012

2011

2010

Profit before income tax

1,036,921

2,428,974

1,674,123

Tax charge at Russian statutory rate 

(207,384)

(485,795)

(334,825)

Profits taxed at different rates

54,709

4,287

83,758

Corrections to prior years' current tax charge

3,325

(4,806)

27,132

Non-tax deductible expenses, net

(48,656)

(41,550)

(56,147)

Tax-loss carry forwards expired

(1,057)

(4,638)

-

Changes in non-recognized deferred tax assets

(73,361)

71,572

(151,874)

Reassessment of deferred tax liabilities

8,939

(5,082)

4,650

Income tax expense

(263,485)

(466,012)

(427,306)

The composition of the net deferred tax liability based on the temporary differences arising between the fiscal and reporting balance sheets of the consolidated companies, is given below:

 December 31,

 

2012

2011

2010

Deferred tax assets:

 

 

 

  Tax-loss carry forwards

187,088

276,782

300,717

Property, plant and equipment

5,973

8,839

51,954

Intangible assets

262

281

495

  Inventory

46,650

35,030

29,965

  Accounts receivable

65,198

38,373

18,683

  Provisions

134,284

117,206

73,366

  Financial investments

94,087

93,734

37,705

Other

73,268

52,742

114,624

Gross deferred tax assets

606,810

622,987

627,509

  Less offsetting with deferred tax liabilities

(506,014)

(523,336)

(523,732)

Recognized deferred tax assets

100,796

99,651

103,777

 December 31,

 

2012

2011

2010

Deferred tax liabilities:

 

 

 

  Property, plant and equipment

(615,756)

(555,062)

(560,735)

  Provisions

(4,072)

(7,812)

(3,570)

  Intangible assets

(143,862)

(138,536)

(382,392)

  Inventory

(19,469)

(17,290)

(23,842)

  Investments in joint ventures and associates

(29,521)

(36,817)

(38,164)

  Accounts receivable

(2,286)

(249)

(62)

  Financial liabilities

(7,152)

(6,988)

(24,875)

  Other

(21,974)

(47,708)

(5,163)

Gross deferred tax liabilities

(844,092)

(810,462)

(1,038,803)

Less offsetting with deferred tax assets

506,014

523,336

523,732

Recognized deferred tax liabilities

(338,078)

(287,126)

(515,071)

Net deferred tax liability

(237,282)

(187,475)

(411,294)

The movement in the net deferred tax liability was as follows:

 Year ended December 31,

 

2012

2011

2010

Opening balance

(187,475)

(411,294)

(155,155)

Recognized in income statement

(39,999)

8,515

(76,938)

Recognized in other comprehensive income

(785)

4,730

(7,626)

Business combinations

-

-

(120,139)

Reclassified to liabilities related to assets held for sale

-

198,118

(51,690)

Foreign exchange differences

(9,023)

12,456

254

Closing balance

(237,282)

(187,475)

(411,294)

The Group has not recognized cumulative tax-loss carry forwards in the following amounts and with the following expiry dates (stated in millions of US dollars):

 December 31,

 

2012

2011

2010

In the following year

-

-

0.1

Between one and five years

86.8

-

67.9

Between five and ten years

116.0

49.9

127.0

Between ten and twenty years

2,216.4

2,014.3

1,836.4

No expiry

-

-

85.5

 

2,419.2

2,064.2

2,116.9

Taxable differences, related to investments in subsidiaries where the Group is able to control the timing of the reversal and it is probable that the temporary difference will not reverse in the foreseeable future, amounted to US$ 6,336.6 million at December 31, 2012 (December 31, 2011: US$ 5,066.2 million; December 31, 2010: US$ 4,603.4 million).