BP (BP)

Factors affecting current tax charge

        The following table provides a reconciliation of the UK statutory corporation tax rate to the effective current tax rate of the Group on profit before taxation.

F - 26

        Current year timing differences arise mainly from the excess of tax depreciation over book depreciation.

        From January 1, 2005, the Group has adopted International Financial Reporting Standards (IFRS). As a consequence, there will be a change in the basis of providing deferred taxation in such areas as business combinations and the valuation of inventory, which will lead to changes to certain of the factors described below and may lead to a change in the Group's effective tax rate.

        The Group earns income in many different countries and, on average, pays taxes at rates higher than the UK statutory rate. The overall impact of these higher taxes, which include the supplementary charge of 10% on UK North Sea profits, is subject to changes in enacted tax rates and the country mix of the Group's income. However, it is not expected to increase or decrease substantially in the near term.

        The tax charge in 2002 reflected a benefit from US 'non-conventional fuel credits' which are no longer available after December 31, 2002. The effect of the loss of these credits on the overall tax charge was offset in 2003 by benefits from restructuring and planning initiatives.

        The Group has around $7.7 billion ($4.5 billion) of carry-forward tax losses in the UK and Germany, which would be available to offset against future taxable income. At the end of 2004, no tax assets were recognized on these losses (at the end of 2003, $285 million of assets were recognized). Tax assets are recognized only to the extent that it is considered more likely than not that suitable taxable income will arise. Carry-forward losses in other taxing jurisdictions have not been recognized as deferred tax assets, and are unlikely to have a significant effect on the Group's tax rate in future years.

        The Group's profit before taxation includes inventory holding gains or losses. These gains (or losses) are not taxed (or deductible) in certain jurisdictions in which the Group operates, and therefore give rise to decreases or increases in the effective tax rate. The impact of this item will be reduced under IFRS.

        The impact on the tax rate of acquisition amortization (non-deductible depreciation and amortization relating to the fixed asset revaluation adjustments and goodwill consequent upon the Atlantic Richfield and Burmah Castrol acquisitions) is likely to be eliminated when the Group reports its results under IFRS.

        The major component of timing differences in the current year is accelerated tax depreciation. Based on current capital investment plans, the Group expects to continue to be able to claim tax allowances in excess of depreciation in future years at a level similar to the current year.

F - 27

Factors affecting current tax charge

        The following table provides a reconciliation of the UK statutory corporation tax rate to the effective current tax rate of the Group on profit before taxation.

        Current year timing differences arise mainly from the excess of tax depreciation over book depreciation.

        From January 1, 2005, the Group has adopted International Financial Reporting Standards (IFRS). As a consequence, there will be a change in the basis of providing deferred taxation in such areas as business combinations and the valuation of inventory, which will lead to changes to certain of the factors described below and may lead to a change in the Group's effective tax rate.

        The Group earns income in many different countries and, on average, pays taxes at rates higher than the UK statutory rate. The overall impact of these higher taxes, which include the supplementary charge of 10% on UK North Sea profits, is subject to changes in enacted tax rates and the country mix of the Group's income. However, it is not expected to increase or decrease substantially in the near term.

F - 27

        The tax charge in 2002 reflected a benefit from US 'non-conventional fuel credits' which are no longer available after December 31, 2002. The effect of the loss of these credits on the overall tax charge was offset in 2003 by benefits from restructuring and planning initiatives.

        The Group has around $7.7 billion ($4.5 billion) of carry-forward tax losses in the UK and Germany, which would be available to offset against future taxable income. At the end of 2004, no tax assets were recognized on these losses (at the end of 2003, $285 million of assets were recognized). Tax assets are recognized only to the extent that it is considered more likely than not that suitable taxable income will arise. Carry-forward losses in other taxing jurisdictions have not been recognized as deferred tax assets, and are unlikely to have a significant effect on the Group's tax rate in future years.

        The Group's profit before taxation includes inventory holding gains or losses. These gains (or losses) are not taxed (or deductible) in certain jurisdictions in which the Group operates, and therefore give rise to decreases or increases in the effective tax rate. The impact of this item will be reduced under IFRS.

        The impact on the tax rate of acquisition amortization (non-deductible depreciation and amortization relating to the fixed asset revaluation adjustments and goodwill consequent upon the Atlantic Richfield and Burmah Castrol acquisitions) is likely to be eliminated when the Group reports its results under IFRS.

        The major component of timing differences in the current year is accelerated tax depreciation. Based on current capital investment plans, the Group expects to continue to be able to claim tax allowances in excess of depreciation in future years at a level similar to the current year.

F - 28