150 Vodafone Group Plc Annual Report 2025
Strategic report
Governance
Financials
Other information
6. Taxation (continued) Based on the current forecasts, €3,065 million (20%) (2024: €3,306 million) of the deferred tax asset is forecast to be used within the next 10 years, and €6,194 million (40%) (2024: €6,344 million) used within 20 years. The losses are projected to be fully utilised over the next 47 to 52 years (2024: 52 to 57 years). The decrease in the recovery period compared to the prior year is principally a result of higher forecast interest rates, resulting in higher retained margins on existing financing activities. An increase or decrease in the forecast income in Luxembourg in each year of 5%-10% would change the period over which the losses will be fully utilised by 3 to 6 years either way. The Group uses different scenarios to forecast income to understand the impact that a change in interest rates or level of debt advanced by the Luxembourg companies could have on the recovery period of the losses.
Based on the above factors the Group concludes that it is probable that the current UK tax group will continue to generate taxable profits in the future against which it will use these capital allowances and other deferred tax assets. In June 2023 we announced a binding agreement to combine our Vodafone UK business with Three UK to form a new merged UK business (the “merged UK Group”). Following the completion of this transaction merged UK Group will form a separate UK tax group, and th e recognition of Vodafone UK’s deferred tax asset will be assessed by reference to the taxable profit forecast of that newly combined business. The deferred tax assets of the remainder of the UK group will be assessed by reference to the taxable profits generated by existing group service activities, brand and financing income, including that arising from lending into the merged UK group. We expect the recovery period of the deferred tax assets of both the merged UK group and the remainder of the UK group to be lower than 46 years at 31 March 2026. The Group has capital losses amounting to €29,762 million (2024: €29,713 million) in respect of UK subsidiaries which are only available for offset against future capital gains and, due to the UK Substantial Shareholding Exemption rules, we do not believe it is probable we will utilise these losses such that no deferred tax asset has been recognised, as in the prior year. Deferred tax assets on losses in Germany The Group has a recognised deferred tax asset of €1,950 million (2024: €2,029 million) in Germany in respect of losses arising primarily on the write down of investments in Germany in 2000. The losses relate to German corporate tax and trade tax liabilities, and they do not expire. The Group concluded it is probable that the German business will generate sufficient taxable profits in the future against which we can utilise these losses. The Group has reviewed the latest five -year forecasts for the German business, and the inherent risks of operating in the telecommunications business. In the period beyond the 5-year forecast, the Group continues to take into consideration the implications of the Growth Opportunities Act, substantively enacted in March 2024 which introduces new interest restriction rules applying to both corporate and trade tax and for which a grace-period to 31 December 2024 was introduced during the year. We expect to fully utilise the trade tax losses within 4-5 years, and corporate tax losses within 14-15 years. Unremitted earnings No deferred tax liability has been recognised in respect of a further € 39,199 million (2024: €38,380 million) of unremitted earnings of subsidiaries because the Group is able 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. Pillar Two - Global Minimum Tax The BEPS Pillar Two Minimum Tax legislation was enacted in July 2023 in the UK with effect from financial years commencing on or after 1 January 2024. The Group has applied the temporary exception under IAS 12 in relation to the accounting for deferred taxes arising from the implementation of the Pillar Two rules. The FY25 tax charge includes a current tax charge of €7 million relating to Pillar 2 income taxes.
The Group does not currently recognise deferred tax assets which are forecast to be used 60 years beyond the reporting period date.
Any future changes in tax law or the structure of the Group could have a significant effect on the use of the Luxembourg losses, including the period over which these losses can be utilised. On the basis that future changes in tax laws are unknown, the profit forecasts assume that existing tax laws continue. Based on the above factors the Group concludes that it is probable that the Luxembourg companies will continue to generate taxable profits in the future against which it will use these losses. Deferred tax assets in the UK The Group has a recognised UK deferred tax asset of €2,566 million (2024: €2,485 million). This consists primarily of excess capital allowances, which can be claimed on a reducing balance basis, held by the current UK tax group consisting of the UK operating company along with financing, holding and group service companies. The Group has reviewed the latest 5-year forecasts for the current UK tax group which incorporates the inherent risks of operating in the telecommunications sector. In the period beyond the 5-year forecast we have reviewed the profits inherent in the terminal period taking into account the forecast level of external debt held by the Group and the future profitability of material UK entities including Vodafone UK. Based on the current forecasts, the deferred tax asset is expected to be recovered over the next 46 years (2024: 27 years). The recovery period has increased compared to the prior year primarily due to an updated forecast of future taxable income arising in the UK tax group in addition to refinements to our modelling of future UK taxable income. An increase or decrease in the forecast net taxable income in the current UK tax group in each year of 5%-10% would change the period over which the deferred tax asset will be fully utilised by 1-2 years either way.
The Group does not currently recognise deferred tax assets which are forecast to be used 60 years beyond the reporting period date.
Any future changes in tax law or the structure of the Group could have a significant effect on the use of the UK capital allowances and other deferred tax assets, including the period over which these can be utilised.
On the basis that future changes in tax laws are unknown, the profit forecasts assume that existing tax laws continue.
Powered by FlippingBook