DEO » Topics » Income taxes

This excerpt taken from the DEO 6-K filed Mar 20, 2007.

5.   Income taxes

The £367 million taxation charge for the six months ended 31 December 2006 comprises a UK tax charge of £55 million and a foreign tax charge of £312 million.

This excerpt taken from the DEO 20-F filed Sep 25, 2006.

Income taxes

Under IAS 12Income taxes, deferred tax is recognised in respect of nearly all taxable temporary differences arising between the tax written down value of assets and liabilities and the book value. Under

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Notes to the consolidated financial statements (continued)

34    Explanation of transition to IFRS reporting (continued)

UK GAAP, deferred tax was recognised on timing differences. This has resulted in deferred tax being recognised under IFRS on certain temporary differences that would not have given rise to deferred tax under UK GAAP. In addition to the new deferred tax assets and liabilities in respect of share-based payments, post employment benefits and agriculture, the group’s balance sheet includes an additional deferred tax asset representing the recognition of tax benefits of group reorganisations made in prior years (30 June 2005 – £820 million; 1 July 2004 – £1,084 million) and deferred tax in respect of other intangible assets (30 June 2005 and 1 July 2004 – £63 million).

The deferred tax asset in respect of group reorganisations will be amortised through the income statement over the period that tax benefits are received. In the year ended 30 June 2005, the deferred tax asset was reduced by amortisation of £142 million. In addition, due to the reduction in overseas tax rates during the year ended 30 June 2005, the asset was further reduced by £118 million. The total additional tax charge to the income statement in respect of group reorganisations was therefore £260 million. Other deferred tax items charged to the income statement in the year ended 30 June 2005 amounted to £7 million.

Over a number of years, the group has made a number of acquisitions and consequently recognised brand and other intangibles on its balance sheet. Some of these acquisitions were structured as an acquisition of a legal entity and therefore the brand intangible has no equivalent tax basis. The group therefore recognised an incremental deferred tax liability at 30 June 2005 of £489 million (1 July 2004 – £438 million) including £41 million in relation to the Ursus and Chalone acquisitions during the year ended 30 June 2005. In accordance with IFRS1, the equivalent adjustment in respect of the deferred tax liability at the transition date was taken as an adjustment to retained earnings. For the acquisitions made after the transition date, the adjustment was included as part of goodwill. The deferred tax liabilities established on brands will only crystallise on any subsequent disposal or impairment of the brands in respect of which they have been established.

Other deferred tax adjustments at 30 June 2005, on compliance with IFRS, included: a reduction of the deferred tax asset in respect of unrealised profits on the intra-group transfer of inventories, producing an additional deferred tax liability of £1 million (1 July 2004 – £8 million asset); an additional deferred tax liability of £39 million in respect of rolled over capital gains on the disposal of property (1 July 2004 – £36 million) and additional deferred tax liabilities of £36 million in respect of fair value adjustments on the Seagram acquisition (1 July 2004 – £39 million).

Under IAS 1 - Presentation of financial statements, the tax charge on the face of the income statement comprises the tax charge of the company, its subsidiaries and the share of any joint ventures that are proportionately consolidated. The group’s share of its associated undertakings’ tax charges are included as part of the share of associates’ profits rather than being part of the tax charge, as under UK GAAP. For the year ended 30 June 2005, the group’s share of its associates’ tax charges amounted to £62 million.

This excerpt taken from the DEO 6-K filed Mar 27, 2006.
Income taxes

Under IAS 12—Income taxes, deferred tax is recognised in respect of nearly all taxable temporary differences arising between the tax written down value of assets and liabilities and the book value. Under UK GAAP, deferred tax is recognised on timing differences. This results in deferred tax being recognised under IFRS on certain temporary differences that would not have given rise to deferred tax under UK GAAP. As a result, the group’s transition balance sheet at 1 July 2004 includes an additional deferred tax asset and additional deferred tax liabilities.

The deferred tax assets represent the recognition of tax benefits of group reorganisations made in prior years. This asset will be amortised through the income statement over the period that tax benefits are received.

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Over a number of years, the group has made a number of acquisitions and consequently recognised brand intangibles on its balance sheet. Some of these acquisitions were structured as an acquisition of a legal entity and therefore the brand intangible has no equivalent tax basis. The group has therefore recognised an incremental deferred tax liability on the transition balance sheet with an equivalent adjustment in reserves. This deferred tax liability will only crystallise on any subsequent disposal or impairment of the brands in respect of which it has been established. This is not expected to occur in the foreseeable future.

Other deferred tax adjustments on compliance with IFRS include items in respect of unrealised profits on the intra-group transfer of inventories and an additional deferred tax liability in respect of rolled over capital gains on the disposal of property.

IFRS requires that full provision is made for tax arising on unremitted earnings from subsidiaries, joint ventures and associates, except to the extent that the group can control the timing of remittances and remittance is not probable in the near future. Under UK GAAP, tax was only provided on unremitted earnings to the extent that dividends had been accrued or if there was a binding agreement for the distribution of earnings at the reporting date.

Under IAS 1—Presentation of financial statements, the tax charge on the face of the income statement comprises the tax charge of the company, its subsidiaries and the share of any joint ventures that are proportionately consolidated. The group’s share of its associated undertakings’ tax charges are recorded as part of the share of associates’ profits rather than being part of the tax charge as under UK GAAP.

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