198 YINSON HOLDINGS BERHAD ACCOUNTABILITY 5. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS (CONTINUED) (b) Measurement and recognition of revenues on EPCIC contracts based on the input method The Group has ongoing EPCIC contracts to construct FPSO vessels for customers. For these contracts, revenue is recognised over time by reference to the Group’s progress towards completing the EPCIC of the FPSO. The measure of progress is determined based on the proportion of contract costs incurred to date to the estimated total contract costs (“input method”). Significant judgement is used to estimate the above-mentioned total contract costs to complete. In making these estimates, management has applied its past experience of completing similar projects, as well as quotations from and contracts with suppliers and sub-contractors. These estimations are also made with due consideration of the circumstances and relevant events that were known to management at the date of these financial statements. Total contract costs may also be affected by factors such as uncertainties in contract execution, variation in scope of works and acceptance of claims by customers. For the financial year ended 31 January 2025, if there is an increase/decrease of 5% to the estimated total contract costs, revenue would decrease/increase by RM346 million (2024: RM601 million). Costs and revenue (and the resulting gross margin) at completion reflect, at each reporting period, management’s current best estimate of the probable future benefits and obligations associated with the contract. (c) Income taxes The Group recognises assets and liabilities for expected tax issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recognised, such differences will impact the income tax and deferred tax positions in the period in which such determination is made. In measuring the provision for taxation and deferred taxation at the reporting date, the Group has applied judgements and estimates in relation to interpretation of tax legislations in arriving at the Group’s tax position. Judgements and estimates are based on the current tax legislation and best available information as at the reporting date. In the current financial year, the Group obtained advice from external tax experts due to the restructuring of governance and operational responsibilities between the Netherlands and Brazil. The Group has determined, based on advice provided by external tax experts, that it is probable that the charter contracts for the Group’s Brazilian FPSO projects qualifies as provision of services under a time charter agreement, which thereby results in the transfer of the FPSO from the Netherlands head office to a Brazilian permanent establishment (“PE”) of the Netherlands company when the construction of the FPSO is completed and the operational phase commences. Based on this, the Group has revised its tax basis for its Offshore Production operations in the Netherlands to reflect this filing position. Significant estimation is involved in ascertaining the attribution of profits to the Netherlands head office and Brazil PE on an arm’s length basis based on appropriate guidelines and transfer pricing methodologies. Significant estimation is also involved when determining the Fair Market Value (“FMV”) of the FPSO upon transfer from the Netherlands head office to the Brazil PE. The difference between the FMV and tax book value of the FPSO will give rise to an object exemption, which results in lower tax relief in the Netherlands during the operational phase of the FPSO. As a result of the change in tax basis, the following are the consequential adjustments for the Netherlands companies and the Group: 2025 Change in estimate RM million Reversal of deferred tax liabilities 591 Advance tax payments recognised as tax recoverable 113 Total income tax credit 704
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