Vodafone 2024 Annual Report

Notes to the consolidated financial statements (continued) 162 Vodafone Group Plc Annual Report 2024 2020 162 Vodafone Group Plc Annual Report 2024 Strategic report Governance


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6. Taxation (continued) Factors affecting the tax charge in future years

The Group’s future tax charge, and effective tax rate, could be affected by several factors including tax reform in countries around the world, including any arising from the OECD’s or European Commission’s work on the taxation of the digital economy and European Commission initiatives such as the Minimum Tax directive, Business in Europe: Framework for Income Taxation ‘BEFIT’ or as a consequence of state aid investigations, future corporate acquisitions and disposals, any restructuring of our businesses and the resolution of open tax issues (see below). The Group is routinely subject to audit by tax authorities in the territories in which it operates. The Group considers each issue on its merits and, where appropriate, holds provisions in respect of the potential tax liability that may arise. As at 31 March 2024, the Group holds provisions for such potential liabilities of €445 million (2023: €412 million). These provisions relate to multiple issues across the jurisdictions in which the Group operates. As the tax impact of a transaction can be uncertain until a conclusion is reached with the relevant tax authority or through a legal process, the amount ultimately paid may differ materially from the amount accrued and could therefore affect the Group's overall profitability and cash flows in future periods. See note 29 ‘Contingent liabilities and legal proceedings’ to the consolidated financial statements. The tables below present the gross amount and expiry dates of losses available for carry forward for the year ended 31 March 2024 and the comparative year ended 31 March 2023. Expiring Expiring within beyond 31 March 2024 5 years 6 years Unlimited Total €m €m €m €m Losses for which a deferred tax asset is recognised 20 – 80,224 80,244 Losses for which no deferred tax is recognised 313 15,653 40,378 56,344 333 15,653 120,602 136,588 Expiring Expiring within beyond 31 March 2023 5 years 6 years Unlimited Total €m €m €m €m Losses for which a deferred tax asset is recognised 15 59 78,967 79,041 Losses for which no deferred tax is recognised 306 15,649 18,321 34,276 321 15,708 97,288 113,317 Deferred tax assets on losses in Luxembourg Included in the table above are losses of €67,016 million (2023: €65,232 million) that have arisen in Luxembourg companies. A deferred tax asset of €16,714 million (2023: €16,269 million) has been recognised in respect of these losses, as we conclude it is probable that the Luxembourg entities will continue to generate taxable profits in the future against which we can utilise these losses. These tax losses principally arose from historical impairments, primarily following the acquisition of the Mannesmann Group in 2000. These losses also arose prior to the 2017 tax reform in Luxembourg and are available to carry forward indefinitely. Losses incurred after the 2017 tax reform in Luxembourg, expire after 17 years and can only be used after any pre-existing losses on a first-in-first- out basis. The Luxembourg companies have €15,933 million (2023; €15,925 million) of post-2017 losses, which will fully expire in 16 years. No deferred tax asset is recognised for these post-2017 losses on the basis that they are not forecast to be used prior to the expiry of their 17 year life. We also have €9,136 million (2023: €9,136 million) of Luxembourg losses in a former Cable & Wireless Worldwide Group company, for which no deferred tax asset has been recognised as it is uncertain whether these losses will be utilised. In the year ended 31 March 2024, the Luxembourg companies recognised an additional €1,019 million deferred tax asset relating to losses arising pre-2017, as a result of favourable case law during the year. The Luxembourg companies utilised €2,393 million of their pre-2017 losses in the current year, representing €598 million of the deferred tax asset and 3.6% of the recognised deferred tax asset. The recognition of the €1,019 million additional deferred tax asset has a significant impact on reducing our total tax charge and effective tax rate for the year but is a deferred tax impact and has no immediate cash-tax impact. Following restructuring in December 2022, which saw the Luxembourg companies dispose of their investments in the Group’s non-Luxembourg operating companies, the profits and losses in Luxembourg are no longer expected to be significantly impacted by changes in the value of the Luxembourg companies’ investments. The recovery of the deferred tax asset is expected to be driven by the recurring profits of the Luxembourg companies. These recurring profits are derived from the Group’s internal financing, centralised procurement, and international roaming activities. These activities have consistently generated taxable profits of over €1 billion per annum throughout their existence. The Group has reviewed the latest five-year forecasts for the Luxembourg companies, including their ability and the Group’s intention to continue to generate income beyond this period. The forecasts consider the impact of the current market conditions on the existing financing activities, including the current view of future interest rates, levels of intragroup financing, as well as the future profits generated from the procurement and roaming activities. This assessment also included a review of the commercial structures supporting the profits generated from these activities and considered the factors, under the Group’s control, which could impact the ability of these activities to generate taxable profits. We have assessed that the current structure continues to be sustainable under the tax laws substantively enacted at the reporting period date and the Group’s intentions to keep these activities in Luxembourg remains unchanged. Based on the current forecasts, €3,306 million (20%) (2023: €4,518 million) of the deferred tax asset is forecast to be used within the next 10 years, and €6,344 million (38%) (2023: €8,742 million) used within 20 years. The losses are projected to be fully utilised over the next 52 to 57 years (2023: 35 to 39 years).

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