Virgin Media 2006 Annual Report Download - page 122

VIRGIN MEDIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Income Taxes (Continued)
existing at that date, then be credited to paid in capital. The majority of the valuation allowance relates to tax attributes that existed at
January 10, 2003. In 2006, we did not recognize any such tax benefits. In 2005, we recognized a tax benefit of £7.7 million which
resulted in a deferred tax expense and a reduction in reorganization value of this amount.
As discussed in note 1, we emerged from Chapter 11 bankruptcy on January 10, 2003. The restructuring of our debt gave rise to
cancellation of debt income in 2003, which was non−taxable since the debt cancellation was in connection with a bankruptcy
reorganization. However, to the extent that such amount was excluded from U.S. taxable income, certain tax attributes were subject to
reduction, including certain U.S. net operating loss carryforwards. The reduction of tax attributes, which is reflected in the above
table, had no impact on our financial statement position since the deferred tax assets related to these tax attributes were offset by a
corresponding valuation allowance. Furthermore, the reorganization caused an ownership change pursuant to Internal Revenue Service
Code Section 382. Section 382 will limit our ability to utilize any remaining U.S. net operating loss carryforwards that existed at
January 10, 2003.
At December 31, 2006, we had net operating loss carryforwards for U.S. federal income tax purposes of £83 million that expire
by 2026. As discussed in Note 5, acquisitions that took place in 2006 affected our share ownership. We are evaluating whether the
application of Section 382 may constitute an ownership change for U.S federal income tax purposes. However, it is not anticipated
that an ownership change would significantly affect our ability to use net operating losses arising in 2006. We also have capital loss
carryforwards of £3.1 million for U.S. federal income tax purposes that expire in 2010 (2005: £4.5 billion which expired in 2006). We
have U.K. net operating loss carryforwards of £3.6 billion that have no expiration date. Pursuant to U.K. law, these losses are only
available to offset income of the separate entity that generated the loss. A portion of the U.K. net operating loss carryforward relates to
dual resident companies, of which the U.S. net operating loss carryforward amount is £1.1 billion. Section 382 may limit our ability to
utilize these losses for U.S. purposes. We also have U.K. capital loss carryforwards of £12.2 billion that have no expiration date.
However, we do not expect to realize any significant benefit from these capital losses, which can only be used to the extent we
generate U.K. taxable capital gain income in the future.
At December 31, 2006, we had fixed assets on which future U.K. tax deductions can be claimed of £12.1 billion. The maximum
amount that can be claimed in any one year is 25% of the remaining balance, after additions, disposals and prior claims.
F−43
Source: VIRGIN MEDIA INVESTM, 10−K, March 01, 2007