131 Vodafone Group Plc Annual Report 2026
Strategic report
Governance
Financials
Other information
Independent auditor’s report to the members of Vodafone Group Plc continued
Key observations communicated to the Audit and Risk Committee Based on our audit procedures, we considered management’s assessment supporting the recoverability of the goodwill balance allocated to the Germany CGU, including the conclusion that no impairment charge was required, to be reasonable. Accordingly, no impairment charge has been recognised for the year. The disclosures in Note 4 of the consolidated financial statements in respect of the Germany CGU are consistent with the requirements of IAS 36 including the sensitivity disclosures. How we scoped our audit to respond to the risk and involvement with component teams The recoverability of the Group’s Germany CGU carrying value was audited centrally by the Group audit team with support from the component audit team on certain procedures at the local market level. Risk Recognition and recoverability of deferred tax assets in Luxembourg and VodafoneThree As more fully described in Note 6 to the consolidated financial statements, the Group recognises deferred tax assets in accordance with IAS 12 Income Taxes, based on whether management determines that it is probable, which requires significant judgement, that there will be sufficient and suitable taxable profits in the relevant legal entity or tax group to allow the recognized assets to be recovered. Deferred tax assets amounting to €15,248 million (FY25: €15,563 million) are recognised in Luxembourg in respect of losses and €2,067 million (FY25: Nil) for VodafoneThree, primarily relating to excess capital allowances. Management concluded it is probable that the related entities will continue to generate taxable profits in the future against which the deferred tax assets will be recovered over a period of 46 to 50 years (FY25: 47 to 52 years) in Luxembourg and 46 years for VodafoneThree. The Company does not currently recognize deferred tax assets which are forecast to be used 60 years beyond the reporting period. The nature of the respective forecasts impact the timeframe over which the deferred tax assets in Luxembourg and for Vodafone Three are expected to be recovered. – The Luxembourg companies’ income is primarily derived from internal financing, centralized procurement and international roaming activities. The forecasted future finance income considers assumptions of future interest rates and levels of intragroup financing, as well as forecasted income from the activities described above. – The VodafoneThree income is derived from the operating activities of the VodafoneThree UK tax group. Management’s forecast assumes an expected level of future profitability, expected levels of intercompany debt and reflects inherent risks related to the telecommunications sector. Auditing the Group’s recognition and recoverability of deferred tax assets in Luxembourg and of VodafoneThree is significant to the audit because it involves material amounts, and the judgements and estimates in relation to future taxable profits and the period of time over which the Group expected to utilise these assets, results in increased estimation uncertainty.
Our response to the risk Overall procedures in respect of both jurisdictions We obtained an understanding, evaluated the design and tested the operating effectiveness of management’s controls over the recognition and recoverability of deferred tax assets specifically relating to the Luxembourg and the VodafoneThree tax groups, including the calculation of the gross amount of deferred tax assets recorded and the preparation of the prospective financial information used to determine the Luxembourg and VodafoneThree entities’ future taxable income. We involved our tax professionals and tax specialists, in the performance of our audit procedures which includes, among others, assessing the existence of available losses for both jurisdictions and excess capital allowances for VodafoneThree, and evaluating management’s position on the recoverability of the losses and excess capital allowances with respect to local tax law and tax planning strategies adopted. We also evaluated the nature of reconciling items between forecast profit before tax and taxable profit and considered their appropriateness in accordance with IAS 12. We performed sensitivities to understand the impact of changes in key assumptions of forecast taxable income, on the utilisation period, including historical profitability against forecast. We evaluated the adequacy of the disclosures in respect of the recognition of the deferred tax asset – evaluating the forecast finance income by, on a sample basis, recalculating income with reference to underlying agreements, comparing future interest rates utilised in the forecasts to relevant external benchmarks and assessing the projections of internal debt levels for consistency with our understanding of the business and relevant tax regulations in respect of transfer pricing of financial transactions; – assessing whether contrary evidence exists that is not consistent with either management’s stated intention that the financing structures, as projected, as well as the intercompany debt levels, will remain in place or that it is probable that sufficient future taxable profits will exist in the relevant jurisdictions; – evaluating how the assumptions used in the impairment model for the Germany CGU impact Luxembourg’s forecast interest income from Vodafone Germany, and therefore, the recoverability of the deferred tax assets in Luxembourg; and – assessing the reasonability of forecasted procurement and roaming taxable profits utilised in management’s assessment, by considering historical forecasting accuracy, and comparing forecasts with evidence obtained from other areas of our audit. VodafoneThree UK specific procedures Our additional audit procedures included, among others: – corroborating that the VodafoneThree UK forecast trading activities used within the deferred tax asset recognition model are consistent with those used as an input into the going concern, long-term viability statement, impairment assessment and the information approved by the Board related to management’s business plans; – assessing management’s expected future profitability, by comparing underlying assumptions, to external data, such as economic and industry forecasts and competitor data for the UK telecommunication sector, and supporting contracts and benchmarking provided by management; and against the requirements of IAS 12. Luxembourg specific procedures Our additional audit procedures included, among others;
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