9. Income Taxes

The income tax expense reported differs from the amount computed by applying the U.S. statutory rate to income before income taxes for the following reasons:

	Year Ended December 31,
(Thousands of U.S. Dollars)	2011				2010				2009
Income before income taxes	$	234,247			$	94,406				38,295
		35		%		35		%		35	%
Income tax expense expected		81,986				33,042				13,403
Foreign currency translation adjustments		(417	)			6,409				1,099
Impact of foreign taxes		3,890				(3,094	)			(1,565	)
Enhanced tax depreciation incentive		-				(7,971	)			(3,380	)
Stock-based compensation		4,013				2,381				1,814
Increase in valuation allowance		36,815				19,991				16,199
Branch and other foreign income pick-up in the United States and Canada		(14,363	)			(3,957	)			(5,931	)
Non-deductible third party royalty in Colombia		8,525				5,506				3,532
Non-taxable gain on acquisition		(7,595	)			-				-
Other permanent differences		(5,524	)			4,927				(817	)
Total income tax expense	$	107,330			$	57,234			$	24,354

Current income tax		136,015				76,913				38,795
Deferred tax recovery		(28,685	)			(19,679	)			(14,441	)
Total income tax expense	$	107,330			$	57,234			$	24,354

	As at December 31,
(Thousands of U.S. Dollars)	2011			2010
Deferred Tax Assets
Tax benefit of loss carryforwards	$	63,910		$	27,527
Tax basis in excess of book basis		17,065			7,975
Foreign tax credits and other accruals		27,164			16,895
Capital losses		2,433			1,413
Deferred tax assets before valuation allowance		110,572			53,810
Valuation allowance		(102,796	)		(48,958	)
	$	7,776		$	4,852

Deferred tax assets - current	$	3,029		$	4,852
Deferred tax assets - long-term		4,747			-
		7,776			4,852

Deferred Tax Liabilities
Long-term - book value in excess of tax basis		(186,799	)		(204,570	)
		(186,799	)		(204,570	)

Net Deferred Tax Liabilities	$	(179,023	)	$	(199,718	)

As at December 31, 2011, the Company has operating loss carryforwards of $361.6 million (December 31, 2010 - $95.6 million) and capital losses of $13.7 million (December 31, 2010 – $4.0 million). Of these losses, $339.8 million (December 31, 2010 - $75.4 million) are losses generated by the foreign subsidiaries of the Company. In certain jurisdictions, the net operating loss carryforwards expire between 2012 and 2031 and the capital losses expire between 2012 and 2016, while certain other jurisdictions allow net operating losses to be carried forward indefinitely. Of the total net operating loss carryforwards, $1.2 million will begin to expire by 2012.

Equity tax for the year ended December 31, 2011 of $8.3 million represents a Colombian tax of 6% on a legislated measure which is based on our Colombian segment's balance sheet equity at January 1, 2011. The equity tax is assessed every four years. The tax is payable in eight semi-annual installments over four years, but is expensed in the first quarter of 2011 at the commencement of the four-year period. The remainder of the equity tax liability at December 31, 2011 relates to an equity tax liability assumed upon the acquisition of Petrolifera.

As at December 31, 2011, the total amount of Gran Tierra's unrecognized tax benefits was approximately $20.5 million (December 31, 2010 - $4.2 million), a portion of which, if recognized, would affect the Company's effective tax rate. To the extent interest and penalties may be assessed by taxing authorities on any underpayment of income tax, such amounts have been accrued and are classified as a component of income taxes in the consolidated statement of operations. As at December 31, 2011, the amount of interest and penalties on unrecognized tax benefits included in current income tax liabilities in the condensed consolidated balance sheet was approximately $1.6 million. The Company had no material interest or penalties included in the consolidated statement of operations for the three years ended December 31, 2011.

Changes in the Company's unrecognized tax benefit are as follows:

(Thousands of U.S. Dollars)
Unrecognized tax benefit at January 1, 2011	$	4,175
Changes for tax positions relating to prior year		585
Additions to tax position related to the current year		15,740
Unrecognized tax benefit at December 31, 2011	$	20,500

The Company and its subsidiaries file income tax returns in the U.S. federal and state jurisdictions and certain other foreign jurisdictions. The Company is subject to income tax examinations for the calendar tax years ended 2005 through 2011 in most jurisdictions. The Company does not anticipate any material changes to the unrecognized tax benefits disclosed above within the next twelve months.