Notes to the Consolidated Financial Statements
Notes 6-10
6. Taxation
Income tax expense
2008 £m |
2007 £m |
2006 £m |
|
---|---|---|---|
United Kingdom corporation tax (income)/expense at 30%: | |||
Current year | – | – | 169 |
Adjustments in respect of prior years | (53) | (30) | (15) |
(53) | (30) | 154 | |
Overseas current tax expense/(income): | |||
Current year | 2,539 | 2,928 | 2,077 |
Adjustments in respect of prior years | (293) | 215 | (418) |
2,246 | 3,143 | 1,659 | |
Total current tax expense | 2,193 | 3,113 | 1,813 |
Deferred tax on origination and reversal of temporary differences: | |||
United Kingdom deferred tax | (125) | (49) | 444 |
Overseas deferred tax | 177 | (641) | 123 |
Total deferred tax expense/(income) | 52 | (690) | 567 |
Total income tax expense from continuing operations | 2,245 | 2,423 | 2,380 |
Tax (credited)/charged directly to equity
2008 £m |
2007 £m |
2006 £m |
|
---|---|---|---|
Current tax credit | (5) | (2) | (6) |
Deferred tax (credit)/charge | (65) | 11 | (11) |
Total tax (credited)/charged directly to equity | (70) | 9 | (17) |
Factors affecting tax expense for the year
The table below explains the differences between the expected tax expense on continuing operations, at the UK statutory tax rate of 30% for 2008, 2007 and 2006, and the Group’s total tax expense for each year. Further discussion of the current year tax expense can be found in the section titled Operating Results. Subsequently, the UK statutory tax rate reduced to 28%, effective from 1 April 2008, and the impact on year end tax balances is included within “Effect of current year changes in statutory tax rates” below.
2008 £m |
2007 £m |
2006 £m |
|
---|---|---|---|
Profit/(loss) before tax on continuing operations as shown in the Consolidated Income Statement | 9,001 | (2,383) | (14,853) |
Expected income tax expense/(income) on profit from continuing operations at UK statutory tax rate | 2,700 | (715) | (4,456) |
Effect of taxation of associated undertakings, reported within operating profit | 134 | 119 | 133 |
Impairment losses with no tax effect | – | 3,480 | 7,055 |
Expected income tax expense at UK statutory rate on profit from continuing operations, | |||
before impairment losses and taxation of associates | 2,834 | 2,884 | 2,732 |
Effect of different statutory tax rates of overseas jurisdictions | 320 | 346 | 411 |
Effect of current year changes in statutory tax rates | 66 | 1 | (15) |
Deferred tax on overseas earnings | 255 | (373) | (78) |
Assets revalued for tax purposes | (16) | (197) | (142) |
Effect of previously unrecognised temporary differences including losses | (833) | (562) | (95) |
Adjustments in respect of prior years | (254) | 145 | (470) |
Expenses not deductible for tax purposes and other items | 321 | 577 | 480 |
Exclude taxation of associated undertakings | (448) | (398) | (443) |
Income tax expense from continuing operations | 2,245 | 2,423 | 2,380 |
Deferred tax
Analysis of movements in the net deferred tax balance during the year:
2008 £m |
|
---|---|
1 April 2007 | (4,216) |
Charged to the income statement | (52) |
Credited directly to equity | 65 |
Acquisitions and disposals | (480) |
Exchange movements | 10 |
31 March 2008 | (4,673) |
Deferred tax assets and liabilities in respect of continuing operations, before offset of balances within countries, are as follows:
Gross deferred tax asset £m |
Gross deferred tax liability £m |
Less amounts unrecognised £m |
Net recognised deferred tax asset/ (liability) £m |
Amount credited/ (charged) in income statement £m |
|
---|---|---|---|---|---|
Accelerated tax depreciation | 576 | (1,635) | (25) | (1,084) | 326 |
Tax losses | 25,792 | – | (25,433) | 359 | (6) |
Deferred tax on overseas earnings | – | (3,535) | – | (3,535) | (255) |
Other short term timing differences | 3,807 | (2,223) | (1,997) | (413) | (117) |
31 March 2008 | 30,175 | (7,393) | (27,455) | (4,673) | (52) |
Analysed in the balance sheet, after offset of balances within countries, as:
£m | |
---|---|
Deferred tax asset | 436 |
Deferred tax liability | (5,109) |
31 March 2008 | (4,673) |
Gross deferred tax asset £m |
Gross deferred tax liability £m |
Less amounts unrecognised £m |
Net recognised deferred tax asset/ (liability) £m |
Amount credited/ (charged) in income statement £m |
|
---|---|---|---|---|---|
Accelerated tax depreciation | 386 | (1,720) | (25) | (1,359) | 112 |
Tax losses | 13,619 | – | (13,334) | 285 | (264) |
Deferred tax on overseas earnings | – | (3,296) | – | (3,296) | 373 |
Other short term timing differences | 4,147 | (1,615) | (2,378) | 154 | 469 |
31 March 2007 | 18,152 | (6,631) | (15,737) | (4,216) | 690 |
Analysed in the balance sheet, after offset of balances within countries, as:
£m | |
---|---|
Deferred tax asset | 410 |
Deferred tax liability | (4,626) |
31 March 2007 | (4,216) |
Factors affecting the tax charge in future years
Factors that may affect the Group’s future tax charge include the impact of corporate restructuring, the resolution of open issues, future planning opportunities, corporate acquisitions and disposals, the use of brought forward tax losses and changes in tax legislation and tax rates. For example, in June 2007, the UK Government issued a discussion document about the taxation of companies’ foreign profits and invited comments from business in order to develop more detailed proposals for further consultation and potential legislation in the 2009 calendar year.
Vodafone is routinely subject to audit by tax authorities in the territories in which it operates and the following items have reached litigation. The Group holds provisions in respect of the potential tax liability that may arise. However, the amount ultimately paid may differ materially from the amount accrued and could therefore affect the overall profitability and cash flows of the Group in future periods.
The Group’s subsidiary Vodafone 2 is responding to an enquiry by HM Revenue & Customs (“HMRC”) with regard to the UK tax treatment of one of its Luxembourg holding companies under the controlled foreign companies (“CFC”) rules. Further details in relation to this enquiry are included in note 32 “Contingent liabilities”.
A Spanish subsidiary, Vodafone Holdings Europe SL (“VHESL”), is in disagreement with the Spanish tax authorities regarding the tax treatment of interest expenses claimed by VHESL in the accounting periods ended 31 March 2003 and 31 March 2004. The matter is now being pursued through the Spanish court system.
At 31 March 2008, the gross amount and expiry dates of losses available for carry forward are as follows:
Expiring within 5 years £m |
Expiring within 6-10 years £m |
Unlimited £m |
Total £m |
|
---|---|---|---|---|
Losses for which a deferred tax asset is recognised | 275 | 24 | 901 | 1,200 |
Loses for which no deferred tax is recognised | 226 | 332 | 86,780 | 87,338 |
501 | 356 | 87,681 | 88,538 |
Included above are losses amounting to £1,969 million (2007: £1,938 million) in respect of UK subsidiaries which are only available for offset against future capital gains and since it is uncertain whether these losses will be utilised, no deferred tax asset has been recognised.
The losses above also include £82,204 million (2007: £41,298 million) that have arisen in overseas holding companies as a result of revaluations of those companies’ investments for local GAAP purposes. Since it is uncertain whether these losses will be utilised, no deferred tax asset has been recognised.
In addition to the losses described above, the Group has potential tax losses of £40,181 million (2007: £34,292 million) in respect of a write down in the value of investments in Germany. These losses have to date been denied by the German tax authorities. Vodafone is in continuing discussions with them regarding the availability of the losses. However, the outcome of these discussions and the timing of the resolution are not yet known. The Group has not recognised the availability of the losses, nor the income statement benefit arising from them, due to this uncertainty. If upon resolution a benefit is recognised, it may impact both the amount of current income taxes provided since the date of initial deduction and the amount of the benefit from tax losses the Group will recognise. The recognition of these benefits could affect the overall profitability of the Group in future periods. The £5,889 million increase compared to the position at 31 March 2007 is due to foreign exchange, as a result of sterling weakening against the euro.
The Group holds provisions in respect of deferred taxation that would arise if temporary differences on investments in subsidiaries, associates and interests in joint ventures were to be realised after the balance sheet date. No deferred tax liability has been recognised in respect of a further £49,000 million (2007: £34,946 million) of unremitted earnings of subsidiaries, associates and joint ventures because the Group is in a position to control the timing of the reversal of the temporary difference and it is probable that such differences will not reverse in the foreseeable future. It is not practicable to estimate the amount of unrecognised deferred tax liabilities in respect of these unremitted earnings.