Vodafone Group Plc – Annual report – 31 March 2019
6. Taxation (extract)
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 anti tax avoidance directive, proposed tax and financial reporting directive 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).
On 25 April 2019, the European Commission published its full decision in relation to its investigation into the “group financing exemption” (‘GFE’) in the UK’s controlled foreign company rules and whether the GFE constituted unlawful State Aid. They concluded the GFE does not constitute unlawful State Aid when the managing of the financing activities is outside of the UK. The Group is analysing the full decision, however given that the Group’s Luxembourg financing activities are properly established and operate in accordance with EU and local law as well as the OECD’s transfer pricing guidelines, we do not anticipate any significant impact as a result of the Commission’s findings.
We do not anticipate any significant impact on our future tax charge, liabilities or assets, as a result of the triggering of Article 50(2) of the Treaty on European Union but cannot rule out the possibility that, for example, a failure to reach satisfactory arrangements for the UK’s future relationship with the European Union, could have an impact on such matters. We continue to monitor developments in this area.
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 2019, the Group holds provisions for such potential liabilities of €460 million (2018: €521 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 28 “Contingent liabilities and legal proceedings” to the consolidated financial statements.