IAS 10 para 22(h), substantively enacted tax changes, brought forward losses, potential implications of Brexit

Thomas Cook Group plc – Annual report – 30 September 2017

Industry: travel and leisure

24 DEFERRED TAX (extract)

Factors affecting the tax charge in future periods

In addition to the reduction in the UK corporation tax rate from 20% to 19% (effective from 1 April 2017), a further reduction to 17% (effective from 1 April 2020) was substantively enacted on 6 September 2016. Deferred tax on temporary differences and tax losses as at the balance sheet date is calculated based on the substantively enacted rates at which the temporary differences and tax losses are expected to reverse.

The Group’s future tax charge could be affected by numerous factors, including but not limited to;

  • the UK’s proposal to amend the tax rules relating to the utilisation of brought forward losses and the deductibility of interest were substantively enacted on 31 October 2017. These new rules apply retrospectively from 1 April 2017. With substantive enactment taking place after the Group’s balance sheet date, the accounting standards do not require the impact of these rules to be accounted for until the period ended 30 September 2018. Due to the complexity of the legislation it is too soon to quantify the impact on UK deferred tax; and
  • any tax reforms in jurisdictions where we have a taxable presence, including any reforms which may arise from the UK’s proposed exit from the EU, from the European Commission’s proposals for a Common Corporate Tax Base across the EU or any reforms adopted from the OECD’s BEPS actions such as those in relation to the deductibility of interest, anti-avoidance or transfer pricing.


TAXATION (extract)

The tax charge for the year increased to £34 million (FY16: £33 million). Current tax of £42 million is £3 million higher than last year due to increased tax payable in respect of our profitable business in Northern Europe. A net credit of £8 million was recognised during the year for deferred tax which largely reflects the increased recognition of deferred tax assets in respect of carried forward tax losses in our Spanish entities.

UK tax legislation was enacted after the balance sheet date which will restrict the permitted level of utilisation of brought forward tax losses. The associated UK deferred tax asset will subsequently be recovered over an extended period of time. Although we expect this to impact the recognition of deferred tax assets in FY18 in respect of our sizeable UK tax losses, we do not expect there to be a significant impact on cash tax.