The Company’s pre-tax income from Colombian sources, as defined under Colombian law, is subject to Colombian income taxes at a statutory rate of 33 percent. The Company’s Colombian entities are also subject to a one-time equity tax equal to 6.8 percent of January 1, 2011 equity levels. This tax will be payable in eight equal instalments from 2011 to 2014. A “presumptive” minimum income tax exists which may apply in years with little or no income. When applicable, presumptive income tax is calculated as 33 percent of three percent of prior year net equity. The excess may be carried forward as a credit for five years and recovered against future cash taxes otherwise payable. Tax losses may be carried forward without limitations to offset taxable income.
Costs incurred prior to December 31, 2010 related to the acquisition or construction of fixed assets were subject to a special tax deduction in the year of acquisition. The additional deduction rate was equal to 40 percent if the costs were incurred prior to December 31, 2009 and 30 percent if incurred in 2010. The 30% special deduction was eliminated as of January 1, 2011. However, companies that had applied to the Colombian government for legal stability agreements before November 1, 2010, including Petrominerales, may obtain the benefit for up to three years once the legal stability agreement is approved. These enhanced tax allowances may reduce taxes payable in future periods.
As at December 31, 2010, the Company had tax balances in Colombia totalling $718 million, including loss carry-forwards of $1.9 million.