Income taxes

12 Months Ended

Dec. 31, 2020

9 Income taxes

Significant components of income tax expense
	Full year
(in USD million)	2020	2019	2018

Current income tax expense in respect of current year	(1,115)	(7,892)	(10,724)
Prior period adjustments	313	69	(49)

Current income tax expense	(802)	(7,822)	(10,773)

Origination and reversal of temporary differences	(648)	410	(1,359)
Recognition of previously unrecognised deferred tax assets	130	0	923
Change in tax regulations	(12)	(6)	(28)
Prior period adjustments	94	(23)	(99)

Deferred tax income/(expense)	(435)	381	(563)

Income tax	(1,237)	(7,441)	(11,335)

As a measure to maintain activity in the oil and gas related industry during the Covid-19 pandemic, the Norwegian Government on 19 June 2020 enacted temporary targeted changes to Norway’s petroleum tax system for investments incurred in 2020 and 2021 and for new projects with Plans for development and operations (PDOs) or Plans for installation and operations (PIOs) submitted to the Ministry of Oil and Energy by the end of 2022 and approved prior to 1 January 2024. The changes are effective from 1 January 2020 and provide companies with a direct tax deduction in the special petroleum tax (56% tax rate) instead of tax depreciation over six years. In addition, the tax uplift benefit, which has increased from 20.8% to 24%, will be recognised over one year instead of four years. Tax depreciation towards the ordinary offshore corporate tax (22% tax rate) will continue with a six-year depreciation profile. The tax value of any total taxable losses and unused tax uplift benefit incurred in 2020 and 2021, may be refunded from the authorities.

Reconciliation of statutory tax rate to effective tax rate
	Full year
(in USD million)	2020	2019	2018

Income/(loss) before tax	(4,259)	9,292	18,874

Calculated income tax at statutory rate¹⁾	1,445	(2,284)	(5,197)
Calculated Norwegian Petroleum tax²⁾	(2,126)	(5,499)	(8,189)
Tax effect uplift³⁾	1,006	632	736
Tax effect of permanent differences regarding divestments	(9)	380	400
Tax effect of permanent differences caused by functional currency different from tax currency	(198)	8	116
Tax effect of other permanent differences	450	395	337
Recognition of previously unrecognised deferred tax assets⁴⁾	130	0	923
Change in unrecognised deferred tax assets	(1,685)	(974)	72
Change in tax regulations	(12)	(6)	(28)
Prior period adjustments	408	47	(148)
Other items including foreign currency effects	(647)	(139)	(357)

Income tax	(1,237)	(7,441)	(11,335)

Effective tax rate	(29.0 %)	80.1 %	60.1 %

1)The weighted average of statutory tax rates was 33.9% in 2020, 24.6% in 2019 and 27.5% in 2018. The rates are influenced by earnings composition between tax regimes with lower statutory tax rates and tax regimes with higher statutory tax rates. The change in weighted average statutory tax rate from 2018 to 2019 is also caused by the reduction in the Norwegian statutory tax rate from 23% in 2018 to 22% in 2019.

2)The Norwegian petroleum tax rate is 56% for 2020 and 2019, and 55% for 2018.

3)When computing the petroleum tax of 56% on income from the Norwegian continental shelf, an additional tax-free allowance, or uplift, is granted on the basis of the original capitalised cost of offshore production installations. Normally, a 5.2% uplift may be deducted from taxable income for a period of four years starting in the year in which the capital expenditure is incurred. For 2020 temporary rules allow direct deduction of the whole uplift at a rate of 24% in the year the capital expenditure is incurred. For investments made in 2019 the uplift is calculated at a rate of 5.2% per year, while the rate is 5.3% per year for investments made in 2018 and 5.4% per year for investments made in 2017. Transitional rules apply to investments from 5 May 2013 covered by among others Plans for development and operation (PDOs) or Plans for installation and operation (PIOs) submitted to the Ministry of Oil and Energy prior to 5 May 2013. For these investments the rate is 7.5% per year. Unused uplift may be carried forward indefinitely. At year-end 2020 and 2019, unrecognised uplift credits amounted to USD 836 million and USD 1,678 million, respectively.

4)An amount of USD 923 million of previously unrecognised deferred tax assets was recognised in the E&P International reporting segment in 2018. The recognition of the deferred tax assets is based on the expectation that sufficient taxable income will be available through reversals of taxable temporary differences or future taxable income supported by business forecast.

Deferred tax assets and liabilities comprise
(in USD million)	Tax losses carried forward	Property, plant and equipment and intangible assets	Asset retirement obligations	Lease liabilities	Pensions	Derivatives	Other	Total

Deferred tax at 31 December 2020
Deferred tax assets	4,676	905	11,205	1,869	787	30	1,811	21,284
Deferred tax liabilities	(0)	(26,607)	0	(4)	(11)	(236)	(676)	(27,533)

Net asset/(liability) at 31 December 2020	4,676	(25,701)	11,205	1,865	777	(206)	1,135	(6,250)

Deferred tax at 31 December 2019
Deferred tax assets	5,173	369	9,397	1,898	733	108	1,612	19,291
Deferred tax liabilities	0	(24,115)	(0)	(0)	(13)	(119)	(573)	(24,820)

Net asset/(liability) at 31 December 2019	5,173	(23,746)	9,397	1,898	720	(11)	1,040	(5,530)

Changes in net deferred tax liability during the year were as follows:
(in USD million)	2020	2019	2018

Net deferred tax liability at 1 January	5,530	5,367	5,213
Charged/(credited) to the Consolidated statement of income	435	(381)	563
Charged/(credited) to Other comprehensive income	(19)	98	(22)
Foreign currency translation effects and other effects	304	446	(386)

Net deferred tax liability at 31 December	6,250	5,530	5,367

Deferred tax assets and liabilities are offset to the extent that the deferred taxes relate to the same fiscal authority, and there is a legally enforceable right to offset current tax assets against current tax liabilities. After netting deferred tax assets and liabilities by fiscal entity, deferred taxes are presented on the balance sheet as follows:

	At 31 December
(in USD million)	2020	2019

Deferred tax assets	4,974	3,881
Deferred tax liabilities	11,224	9,410

Deferred tax assets are recognised based on the expectation that sufficient taxable income will be available through reversal of taxable temporary differences or future taxable income. At year-end 2020 and 2019 the deferred tax assets of USD 4,974 million and USD 3,881 million, respectively, were primarily recognised in Norway, Angola, Brazil, the UK and Canada. Of these amounts, USD 2,328 million and USD 995 million, respectively, is recognised in entities which have suffered a tax loss in either the current or preceding period. The losses will be utilised through reversal of taxable temporary differences and other taxable income from production of oil and gas. It is considered probable based on business forecasts and a history of taxable income that such profits will be available.

Unrecognised deferred tax assets
	At 31 December
	2020		2019
(in USD million)	Basis	Tax	Basis	Tax

Deductible temporary differences	2,866	1,204	2,550	1,138
Unused tax credits	0	212	0	0
Tax losses carried forward	23,434	5,677	18,259	4,366

Total unrecognised deferred tax assets	26,300	7,093	20,809	5,504

Approximately 14% of the unrecognised carry forward tax losses can be carried forward indefinitely. The majority of the remaining part of the unrecognised tax losses expire after 2031. The unrecognised tax credits expire in the period 2030-2038, while the unrecognised deductible temporary differences do not expire under the current tax legislation. Deferred tax assets have not been recognised in respect of these items because currently there is insufficient evidence to support that future taxable profits will be available to secure utilisation of the benefits.

At year-end 2020, unrecognised deferred tax assets in the USA and Angola represents USD 4,649 million and USD 740 million of the total unrecognised deferred tax assets of USD 7,093 million. Similar amounts for 2019 were USD 3,788 million in the USA and USD 833 million in Angola of a total of USD 5,504 million. The remaining unrecognised deferred tax assets originates from several different tax jurisdictions.