Virgin Media 2012 Annual Report Download - page 53

52
TAXATION
Income Tax Benefit (Expense)
The 2012 income tax benefit was £2,591.2 million compared to an expense of £16.0 million for the same period in
2011, and a benefit of £124.1 million in 2010. The 2012, 2011 and 2010 tax benefit (expense) was comprised of
(in millions):
Year ended December 31,
2012 2011 2010
£m £m £m
Current:
Federal (0.6) (1.0) (4.9)
State and local — — 0.3
Foreign 0.1 5.1 25.0
Total current (0.5) 4.1 20.4
Deferred:
Federal 103.4 3.2 79.8
Foreign 2,488.3 (23.3) 23.9
Total deferred 2,591.7 (20.1) 103.7
Total 2,591.2 (16.0) 124.1
The foreign deferred income tax benefit for the year ended December 31, 2012 related to the reversal of the valuation
allowance on certain of our U.K. deferred tax assets. The federal income tax benefit for the year ended December
31, 2012 related to the reversal of the valuation allowance on the U.S. deferred tax assets in our dual resident companies.
The basis for these reversals is explained in the critical accounting estimates section of this MD&A and in Note 11 of
the notes to the consolidated financial statements contained in Item 15 of this Form 10-K.
The income tax expense in 2011 related primarily to our discontinuance of hedge accounting for the swaps associated
with the $550 million 9.125% senior notes that were prepaid during the year, which resulted in a reclassification of tax
effects associated with gains on those swaps from accumulated other comprehensive income. This expense was
partially offset by consortium tax relief receivable from our joint venture operations, which were sold during 2011.
The foreign current tax benefit and the foreign deferred tax benefit in 2010 were primarily driven by the application of
the intraperiod allocation rules of the Income Taxes Topic of the FASB ASC. The foreign current tax benefit attributable
to continuing operations includes £18.3 million related to the gain on discontinued operations and is offset by tax
expense of £18.3 million that is included within discontinued operations. The £23.9 million foreign deferred tax benefit
attributable to continuing operations is offset by tax expense of £23.9 million that is included within other comprehensive
income as a result of gains in other comprehensive income during 2010.
Additionally, during 2010 we concluded that it was more likely than not that we would be able to utilize certain net
operating loss carryforwards prior to their expiration, which will occur between 2020 and 2032, to reduce future U.S.
federal income tax liabilities. Accordingly, we reduced the previously established valuation allowance on these net
operating loss carryforwards to nil and recorded a federal deferred tax benefit of £79.8 million. This change was due
to a re-assessment of our intentions regarding certain assets during the carryforward period and our judgment that it
is more likely than not that these NOLs will be utilized prior to expiry.
Contingencies
Our VAT treatment of certain other revenue generating activities remains subject to challenge by the U.K. tax authorities.
As a result, we have estimated contingent losses totaling £31.9 million as of December 31, 2012 that are not accrued
for, as we deem them to be reasonably possible, but not probable, of resulting in a liability. We currently expect an
initial hearing on these matters to take place in 2013.
Table of Contents