Carphone Warehouse 2016 Annual Report Download - page 101

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Taxation
Tax laws that apply to the Group’s businesses may be
amended by the relevant authorities, for example as a result of
changes in fiscal circumstances or priorities. Such potential
amendments and their application to the Group are monitored
regularly and the requirement for recognition of any liabilities
assessed where necessary. The Group is subject to income
taxes in a number of different jurisdictions and judgement is
required in determining the appropriate provision for
transactions where the ultimate tax determination is uncertain.
In such circumstances, the Group recognises liabilities for
anticipated taxes due based on best information available and
where the anticipated liability is probable and estimable. Where
the final outcome of such matters differs from the amounts
initially recorded, any differences will impact the income tax
and deferred tax provisions in the year to which such
determination is made. Where the potential liabilities are not
considered probable, the amount at risk is disclosed unless an
adverse outcome is considered remote. The Group has
recognised provisions in relation to uncertain tax positions of
£54 million at 30 April 2016 (2015: £41 million).
Deferred tax is recognised on taxable losses based on the
expected ability to utilise such losses. This ability takes
account of the business plans for the relevant companies,
potential uncertainties around the longer term aspects of these
business plans, any expiry of taxable benefits and potential
future volatility in the local tax regimes.
Provisions
The Group’s provisions are based on the best information
available to management at the balance sheet date.
Judgement is required to assess the likelihood of success of
any claim made against the Group and if any liability will arise.
The most significant provision currently is in relation to the
store reorganisation programme described in note 4. The costs
and timing of cash flows are dependent on exiting the property
lease contracts or subletting the property. Significant
assumptions are used in estimating the ultimate cost to the
Group including the nature, timing and cost of exiting a lease
and the level of sublease income. The future costs assumed
are inevitably only estimates, which may differ from those
ultimately incurred. Refer to note 20 for further information.
Defined benefit pension schemes
The surplus or deficit in the UK defined benefit pension
scheme that is recognised through the consolidated statement
of comprehensive income and expense is subject to a number
of assumptions and uncertainties. The calculated liabilities of
the scheme are based on assumptions regarding salary
increases, inflation rates, discount rates and member longevity.
Such assumptions are based on actuarial advice and are
benchmarked against similar pension schemes. Refer to note
21 for further information.
Acquisition accounting
Accounting for the Merger involved the use of assumptions in
relation to the future cash flows associated with acquisition
intangibles, and the use of valuation techniques in order to
arrive at the fair value of the other non-current assets and
liabilities acquired. The assumptions applied were based on
the best information available to management and valuation
techniques were supported by third party valuation experts.
Nevertheless, the actual performance of these assets and
liabilities may differ from the valuations derived through this
exercise. Judgement was required in identifying the acquirer
in accordance with the criteria detailed in IFRS 3 'Business
Combinations'. The factors considered when identifying the
acquirer included: i) the entity which issued equity to effect the
transaction and the terms on which equity interests were
exchanged ii) the relative voting rights of the entities iii) the
composition of the board and senior management post
transaction iv) the existence of any significant minority
interests; and v) the relative size of the entities. On the basis of
this analysis we concluded that Carphone Warehouse Group
plc was the acquirer.
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