Income tax expense Adaro Energy 2008 Annual Report English

Adaro Energy Annual Report 2008 www.adaro.com 187 Contact Us Governing Adaro Financial Report Corporate Social Responsibility PT ADARO ENERGY Tbk Schedule 555 FORMERLY PT PADANG KARUNIA AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2008 AND 2007 Expressed in million Rupiah, unless otherwise stated

37. TAXATION continued e.

Deferred tax assets 2008 2007 The Company Tax loss carried forward 19,417 28,163 Provision for employee benefits - 522 Deferred tax assets at the end of the year 19,417 28,685 Deferred tax assets at the beginning of the year 28,685 20,956 Charged to consolidated statement of income 9,268 7,729 Deferred tax assets at the end of the year 19,417 28,685 Subsidiaries Tax loss carried forward 496,885 148,850 Provision for employee benefits 4,572 4,636 Difference between commercial and tax net book value of fixed assets 8,048 2,887 Difference in fixed assets under finance lease and lease instalments 16,471 23,520 476,938 132,853 Unrecognised deferred tax assets 452,531 124,715 Deferred tax assets at the end of the year 24,407 8,138 Deferred tax assets at the beginning of the year 8,138 12,743 Charged to consolidated statement of income 16,269 6,970 Reversal of deferred tax assets due to disposal of subsidiary - 288 Loss on investments in subsidiary which is charged to equity - 11,287 Deferred tax assets at the end of the year 24,407 8,138 Consolidated Tax loss carried forward 516,302 177,013 Provision for employee benefits 4,572 5,158 Difference between commercial and tax net book value of fixed assets 8,048 2,887 Difference in fixed assets under finance lease and lease instalments 16,471 23,520 496,355 161,538 Unrecognised deferred tax assets 452,531 124,715 Deferred tax assets at the end of the year 43,824 36,823 Deferred tax assets at the beginning of the year 36,823 33,699 Charged to consolidated statement of income 7,001 14,699 Reversal of deferred tax assets due to disposal of subsidiary - 288 Loss on investments in subsidiaries which is charged to equity - 11,287 Deferred tax assets at the end of the year 43,824 36,823 Although a portion of deferred tax assets are not recognised, management believes that it is more likely than not that the result of future operations will generate sufficient taxable income to realise the deferred tax assets. The realisation of deferred tax assets is dependent to the ability of the Company to generate sufficient taxable income in the future. 188 Adaro Energy Annual Report 2008 www.adaro.com Adaro in Summary From Us to You Running Adaro Management Report Owning Adaro PT ADARO ENERGY Tbk Schedule 556 FORMERLY PT PADANG KARUNIA AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2008 AND 2007 Expressed in million Rupiah, unless otherwise stated

37. TAXATION continued f.

Deferred tax liabilities 2008 2007 Subsidiaries Provision for employee benefits 2,212 2,283 Mining properties 2,628,436 53,263 Difference between commercial and tax net book value of fixed assets 474,139 383,675 Deferred exploration and development expenditure 43,943 39,267 Deferred tax liabilities at the end of the year 3,144,306 473,922 Deferred tax liabilities at the beginning of the year 473,922 499,799 Charged to consolidated statement of income 26,604 50,589 Acquisition of subsidiaries 2,606,840 4,788 Reversal related to the changes of income tax rate in mining properties 35,580 - Exchange difference due to financial statements translation 125,728 19,924 Deferred tax liabilities at the end of the year 3,144,306 473,922

g. Administration

Under the taxation laws of Indonesia, the companies within the Group calculate, submit, and pay tax returns on the basis of self assessment. The Directorate General of Tax “DGT” may assess or amend taxes within ten years of the time the tax becomes due, or until the end of 2013, whichever is earlier. There are new rules applicable to the fiscal year 2008 and subsequent years stipulating that the DGT may assess or amend taxes within five years of the time the tax becomes due.

h. Tax assessment letter

On 13 August 2008 and 12 September 2008, SIS received tax assessment letters for various taxes for the fiscal year 2006, which showed SIS as having overpaid corporate income tax and VAT amounting to Rp 15,486 and Rp 46,471, respectively, and underpaid income tax articles 21 and 23 amounting to Rp 5 and Rp 142, respectively. Management of SIS disagreed with the tax assessment of corporate income tax and income tax article 23 and therefore filed objection letters to the DGT against the tax assessment amounting Rp 3,421. As at the date this report is issued, SIS is being audited for all taxes for the fiscal year 2007 and has not yet received the audit result. Management is of the opinion that the audit result will not have a material impact on SIS’ financial position and cash flows.

i. Changes to taxation law

In September 2008, the House of Representatives approved amendments to the income tax law. These were signed into law by the President on 23 September 2008 and hence are considered enacted. One of these amendments stipulates that the income tax for corporations will be set at a flat rate of 28 commencing 1 January 2009 and further reduced to 25 from 1 January 2010. The reduction in tax rates does not impact on deferred tax balances that are expected to be reversed prior to 1 January 2009. However, it will impact on subsequent reversals. The Group has performed an analysis of the periods in which its deferred tax assets and liabilities will be reversed and has revalued its deferred tax assets and liabilities accor dingly. The net impact is a reduction in the balance of net deferred tax asset as at 31 December 2008 of Rp 6,862. This amount has been reflected in these consolidated financial statements. Adaro Energy Annual Report 2008 www.adaro.com 189 Contact Us Governing Adaro Financial Report Corporate Social Responsibility PT ADARO ENERGY Tbk Schedule 557 FORMERLY PT PADANG KARUNIA AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2008 AND 2007 Expressed in million Rupiah, unless otherwise stated

38. TRANSACTIONS AND BALANCES WITH RELATED PARTIES

The transactions with related parties are conducted on an arm’s length basis. Details of the balances and transactions with related parties are as follows:

a. Trade receivables from related parties

2008 2007 PT Berau Coal 215,591 172,758 Coaltrade Services International Pte Ltd - 148,306 PT Interex Sacra Raya - 75,507 Total 215,591 396,571 As a percentage of total assets 0.64 2.70

b. Other receivables from related parties

2008 2007 Rupiah PT Karunia Barito Sejahtera - 20,159 PT Anugerah Buminusantara Abadi 2,243 - PT Interex Sacra Raya - 1,500 2,243 21,659 US Dollars PT Persada Capital Investama - 2,430 PT Viscaya Investments - 984 PT Bahtera Alam Tamiang - 942 Rachmalta Investments Ltd - 113 - 4,469 Total 2,243 26,128 As a percentage of total assets 0.01 0.18 Receivable from KBS represent receivables from the disposal of ABA, which was paid in 2008. Other receivables from related parties represents reimbursement of expenses incurred on behalf of related parties.

c. Loans to related parties

2008 2007 Rupiah PT Alhasanie - 4,033 US Dollars PT Viscaya Investments - 1,723,125 Rachmalta Investments Ltd - 335,531 Arindo Holdings Mauritius Ltd - 2,394,241 PT Alhasanie - 41,086 Total - 4,498,016 As a percentage of total assets - 30.62 190 Adaro Energy Annual Report 2008 www.adaro.com Adaro in Summary From Us to You Running Adaro Management Report Owning Adaro PT ADARO ENERGY Tbk Schedule 558 FORMERLY PT PADANG KARUNIA AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 31 DECEMBER 2008 AND 2007 Expressed in million Rupiah, unless otherwise stated

38. TRANSACTIONS AND BALANCES WITH RELATED PARTIES continued c.

Loans to related parties continued The interest rates on loans to related parties are as follows: 2008 2007 Rupiah - 12 US Dollars - 4.0-11.6 PT Viscaya Investments On 2 November 2007, Adaro provided an unsecured loan facility of US182,181,957 to Viscaya as amended on 8 December 2007. The loan bears an interest rate at LIBOR plus a certain percentage per annum or other interest rate agreed by both parties. If there is no repayment during the loan period, the accrued interest is capitalised and added to the loan principal. Viscaya will repay all the loan principal and accrued interest on Adaro’s request or in the fifteenth year from the first time the facility was used. As at 31 December 2007, the outstanding loan was US182,941,428. On 22 September 2008, Viscaya and Adaro entered into an amendment agreement to the effect that since 1 April 2008 there is no interest charged for this loan. As at 31 December 2008, Viscaya has been consolidated into the Group, and therefore balances and transactions between Viscaya and Adaro have been eliminated. Rachmalta Investments Ltd An unsecured loan of US26,552,500 was granted by Adaro to Rachmalta on 22 June 2005 as amended on 30 September 2005. This loan was related to the LBO transactions. The loan will be repaid by Rachmalta on 21 June 2020. The loan bears a fixed interest rate per annum and is payable quarterly commencing on 22 September 2005. As at 31 December 2007, the outstanding loan was US35,622,742. On 22 September 2008, Rachmalta and Adaro entered into an amendment agreement to the effect that since 1 April 2008 there is no interest charged for this loan. As at 31 December 2008, Rachmalta has been consolidated into the Group, and therefore balances and transactions between Rachmalta and Adaro have been eliminated. Arindo Holdings Mauritius Ltd An unsecured loan of US456,800,000 was granted by Adaro to Arindo Holdings on 8 December 2005 as amended on 25 July 2006. This loan was related to the LBO transactions. The loan is repayable by Arindo Holdings on 8 December 2010. The loan bears a fixed interest rate per annum and is payable semi-annually commencing on 8 June 2006. Based on the amendment of the agreement, the interest rate changed commencing 25 July 2006. As at 31 December 2007, the outstanding loan was US254,192,655. On 22 September 2008, Arindo Holdings and Adaro entered into an amendment agr eement to the effect that since 1 November 2008 there is no interest charged for this loan. Since 31 December 2008, Arindo Holdings has been consolidated into the Group, and therefore balances and transactions between Arindo Holdings and Adaro have been eliminated. PT Alhasanie “ALH” Based on a loan agreement on 1 March 2005, the Company agreed to provide a loan facility to ALH amounting to Rp 25,000 which is used for working capital purposes. As at 31 December 2007, the oustanding loan was Rp 4,033 and US4,362,092. On 30 January 2008, this loan was fully repaid.

d. Trade payables to related parties

2008 2007 Orchard Maritime Logistics Pte Ltd 147,739 108,023 PT Rahman Abdijaya 61,581 58,720 PT Pulau Seroja Jaya 21,882 - PT Pulau Seroja Jaya Pratama 16,428 - PT Anugerah Buminusantara Abadi 1,756 6,290 PT Padangbara Sukses Makmur - 6,749 PT Padang Sejahtera - 2,540 Total 249,386 182,322 As a percentage of total liabilities 1.27 1.52