The document discusses the tax status of two companies, OPE-PB and OMEL-PB, which operate as branches of non-resident companies in Pakistan. For OPE-PB, amended tax assessments were issued for 2013-2016 and appeals are pending adjudication. No losses are available to be carried forward but pre-CCP expenditures of $3.653 million can be used for future tax adjustments. For OMEL-PB, tax losses, dry hole expenditures, and pre-CCP expenditures are available to be used for future tax adjustments but deferred tax assets have not been fully recognized in financial statements.

1. Project Paul – Draft Red Flag Report - 15 December 2018 1
Taxation of Target
• OPE-PB and OMEL- PB has obtained a permission from the Board of Investment of Pakistan for opening a branch
in Pakistan and bears the status of a branch offices. Its income is subject to corporate income tax, as per the
provisions of the Ordinance.
• Being tax permanent establishment of a non-resident companies and working under PCA with Government of
Pakistan in respect of exploration and production oil and gas and therefore, its income is subject to section 105
read with fifth schedule to the Ordinance.
Position of open tax years Returns of income had been filed by OPE-PB and OMEL-PB under Universal Self-Assessment Scheme, which were
deemed to be completed assessments passed by Commissioner, except where amended by TO as per specified
conditions. Following is the status of amendment of assessments for OPE-PB and OMEL-PB:
OPE-PB
Income Tax
Under the scope of our review, amended assessment orders were passed by TO for TYs 2013, 2014, 2015, and 2016.
The Target has filed appeals against these orders which are pending adjudication before ATIR except TY 2016, which
is pending before CIRA. Issues raised in the assessment orders are explained in subsequent slides.
As per vendor’s DD report and tax status, we understand that tax demands arising out of assessments orders had
been fully paid by OPE-PB under protest. A written representation from Target’s management may be sought for
these payments.
Federal and Provincial Sales Tax
Under the scope of review, sales tax order was passed only for TPs July 2013 to June 2014. Target’s appeal against
the order is pending before ATIR. Issues raised in the order are explained in subsequent slides. Further, a show-
cause notice was issued by provincial sales tax authorities which had been vacated by High Court.
As per vendor’s DD report and tax status summary, we understand that tax demand arising out of Orders-in-Original
had been paid by OPE-PB under protest. A written representation from Target’s management may be sought for
these payments.
OMEL- PB
Income Tax
As per Tax status and vendor’s DD report, no amended assessment orders were passed for the period covered under
our review.
Sales Tax
A show-cause notice was issued and OMEL-PB has obtained stay from Islamabad High Court against initiating
recovery proceedings.
Scope and Basis

2. Project Paul – Draft Red Flag Report - 15 December 2018 2
Tax losses OPE- PB
• No tax losses are available for OPE- PB however, Pre-CCP expenditure amounting to $ 3.653 million are available
for future tax adjustments not exceeding 10% for each year till it is fully consumed. Detailed information is
provided in the subsequent sheets.
OMEL- PB
• Tax losses of Rs. 8,640,031,901 are available to OMEL- PB for future tax adjustments from TY 2018 and onwards.
Tax loss of Rs. 739,733,172 has been computed, as per draft tax computation of TY 2017, however, same has not
been yet finalized, therefore, is of provisional nature. Detailed information is provided in the subsequent sheets.
• Dry hole expenditure of Rs. 4,308,704,990 are available for adjustments for future tax adjustments from TY 2019
and onwards. Detailed information is provided in the subsequent sheets.
• Pre- CCP expenditure of Rs. 2,458,896,149 are available for adjustments for future tax adjustments not
exceeding 10% for each year till it is fully consumed. Detailed information is provided in the subsequent sheets.
Deferred tax assets • Deferred tax asset is recognized for deductible temporary differences, unused tax losses, dry hole expenditures,
pre-CCP expenditure, etc. to the extent that it is probable that taxable profit will be available against which the
deductible temporary differences can be utilized.
• Deferred tax asset is recognized if, and only if, it is considered probable that there will be sufficient future taxable
profits against which the loss or credit carry-forwards can be utilized. The time limit of carry forward of various
items are as follows:
- business losses – upto six tax years
- dry hole expenditure - upto ten tax years
- pre-CCP expenditures – indefinitely
OPE- PB
• No tax loss is available as per data available to us on VDR, however, pre-CCP expenditure of $ 3.653 million are
available which creates, among other temporary differences, a net deferred tax asset of PKR 968.541 million, a
portion of which, amounting to PKR 145.735 million, pertains to pre-CCP expenditure, which available for future
tax adjustments , not exceeding 10% for each year till it is fully consumed.
Scope and Basis

3. Project Paul – Draft Red Flag Report - 15 December 2018 3
Deferred tax assets • A break up of deferred tax credits reported in Note 9 to the financial statements for the year ended December 31,
2015 s as follows:
PKKR (in millions)
- Accelerated depreciation 331.636
- Expenditure over exploration licenses 56.742
- Provision for Workers’ Profit Participation Fund 422.832
- Defined benefit liability 11.595
- Pre-CCP expenditure 145.736
- Total 968.541
• OPE has recognized deferred tax asset of only PKR 968. 541 million, based on financial projection of future three
years which anticipates that taxable profits will arise, by utilizing tax rates of 40%.
OMEL- PB
• Tax losses, dry hole expenditure, pre- CCP expenditure aof PKR 8,640.031 million, PKR 4,308.705 million and PKR
2,458.896 million, respectively are available as per details available to us on VDR which creates , among other
temporary differences, a net deferred tax asset of PKR ____________ , a portion of which, amounting to PKR
___________million, PKR ___________ million and PKR _____________million pertains to tax losses, dry hole
expenditures and pre-CCP expenditure respectively.
• A break up of deferred tax credits reported in Note 5 to the financial statements for the year ended December 31,
2015 s as follows:
PKR (in millions)
- Accelerated depreciation _______
- Expenditure over exploration licenses _______
- Provision for Workers’ Profit Participation Fund _______
- Defined benefit liability _______
- Pre-CCP expenditure _______
- Total _______
• OMEL- PB has recognized deferred tax asset of PKR _______ million, based on financial projection of future three
years which anticipates that taxable profits will arise, by utilizing tax rates of 40%.
Scope and Basis