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Taxation (Tables)
 12 Months Ended
Jun. 30, 2020
Income Taxes [Abstract]  
Schedule of analysis of taxation charge for the year
(a) Analysis of taxation charge for the year
 
United Kingdom
 
 
Rest of world
 
 
Total
 
 
2020
£ million

 
2019
£ million

 
2018
£ million

 
2020
£ million

 
2019
£ million

 
2018
£ million

 
2020
£ million

 
2019
£ million

 
2018
£ million

Current tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Current year
108

 
150

 
131

 
589

 
713

 
503

 
697

 
863

 
634

Adjustments in respect of prior years
6

 
(3
)
 
71

 
(25
)
 
52

 
(2
)
 
(19
)
 
49

 
69

 
114

 
147

 
202

 
564

 
765

 
501

 
678

 
912

 
703

Deferred tax
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Origination and reversal of temporary differences
24

 
29

 
40

 
(143
)
 
(19
)
 
127

 
(119
)
 
10

 
167

Changes in tax rates
6

 
(2
)
 
(11
)
 
39

 
(52
)
 
(360
)
 
45

 
(54
)
 
(371
)
Adjustments in respect of prior years
—

 
5

 
95

 
(15
)
 
25

 
2

 
(15
)
 
30

 
97

 
30

 
32

 
124

 
(119
)
 
(46
)
 
(231
)
 
(89
)
 
(14
)
 
(107
)
Taxation on profit
144

 
179

 
326

 
445

 
719

 
270

 
589

 
898

 
596
Schedule of exceptional tax (credits)/charges
The taxation charge includes the following exceptional items:
 
 
2020
£ million

 
2019
£ million

 
2018
£ million

Brand and tangible asset impairment(i)
 
(165
)
 
—

 
(13
)
Substitution drawback
 
20

 
—

 
—

Obsolete inventories
 
(7
)
 
—

 
—

Other items
 
(2
)
 
—

 
—

French tax audit settlement(ii)
 
—

 
61

 
—

Tax rate change in the Netherlands(iii)
 
—

 
(51
)
 
—

Sale of businesses and brands
 
—

 
33

 
—

Guaranteed minimum pension equalisation
 
—

 
(4
)
 
—

US tax reform(iv)
 
—

 
—

 
(354
)
UK transfer pricing settlement(v)
 
—

 
—

 
143

UK industrial building allowance
 
—

 
—

 
21

 
 
(154
)
 
39

 
(203
)

(i)
Exceptional tax credit of £165 million consists of the impairment of the Windsor and USL brands of £105 million and £25 million, respectively, exceptional tax credits in respect of fixed assets impairments in Nigeria and Ethiopia of £25 million and £10 million, respectively.
(ii) As disclosed in the 2019 Annual Report, in July 2019 Diageo reached a resolution with the French tax authorities on the treatment of interest costs for all open periods which resulted in a total exceptional charge of  €100 million (£88 million), comprising a tax charge of €69 million (£61 million), penalties of  €21 million (£18 million) and interest of €10 million (£9 million). This brought to a close all open issues with the French tax authorities for periods up to and including 30 June 2017.
(iii)
During the year ended 30 June 2019 the Dutch Senate agreed to a phased reduction in the Dutch corporate tax rate which is effective from 1 January 2020. An exceptional tax credit of £51 million principally arose from remeasuring the deferred tax liabilities in respect of the Ketel One vodka distribution rights from a then anticipated tax rate of 25% to 20.5%. The Dutch Senate subsequently agreed in a tax rate of 21.7% on 19 December 2019. The remeasurement of deferred tax liabilities in the year ended 30 June 2020 was recognised as a current tax charge.
(iv) The exceptional tax credit of £354 million ($478 million) resulted from applying the Tax Cuts and Jobs Act (TCJA), enacted on 22 December 2017, in the United States. The credit principally arose on remeasuring the deferred tax liabilities in respect of intangibles and other assets for the change in the US Federal tax rate from 35% to 21%, resulting in an exceptional tax credit of £363 million ($490 million), which is partially offset by £9 million ($12 million) exceptional tax charge in respect of repatriation of untaxed foreign earnings. In addition, there was a one-off charge of £11 million ($15 million) to other comprehensive income and equity, in respect of the remeasurement of the deferred tax assets on post employment liabilities and share-based incentive plans as a result of applying the provisions of the TCJA.
(v) During 2017 Diageo was in discussions with HMRC to seek clarity on Diageo’s transfer pricing and related issues, and in the first half of the year ending 30 June 2018 a preliminary assessment for diverted profits tax notice was issued. Final charging notices were issued in August 2017 and Diageo paid £107 million in respect of the two years ended 30 June 2016. Diageo agreed in June 2018 with HMRC that diverted profits tax does not apply and at the same time has reached resolution on the transfer pricing issues being discussed. The agreement in respect of transfer pricing covers the period from 1 July 2014 to 30 June 2017 and has resulted in an additional UK tax charge of £143 million. In the year ended 30 June 2018 an additional tax charge of £47 million was recognised in current tax which is based on the approach agreed with HMRC.
(1)
Diageo has launched the “Raising the Bar” programme to support pubs and bars to welcome customers back and recover following the Covid-19 pandemic including a commitment of £100 million (£81 million) over a period of up to two years from July 1, 2020. Due to current uncertainty on the precise nature of the spend, it cannot be determined whether the amounts will be deductible for tax purposes in future periods. As a result, no deferred tax asset has been recognized in respect of the provision at the year ended June 30, 2020
Schedule of taxation rate reconciliation and factors that may affect future tax charges
(c) Taxation rate reconciliation and factors that may affect future tax charges
 
 
2020
£ million

 
2019
£ million

 
2018
£ million

Profit before taxation
 
2,043

 
4,235

 
3,740

Notional charge at UK corporation tax rate of 19% (2019 – 19%; 2018 – 19%)
 
388

 
805

 
711

Elimination of notional tax on share of after tax results of associates and joint ventures
 
(54
)
 
(59
)
 
(58
)
Differences in overseas tax rates
 
53

 
106

 
134

Effect of intra-group financing
 
(13
)
 
(34
)
 
(61
)
Non taxable gain on disposals of businesses
 
—

 
(3
)
 
—

Step-up gain
 
(2
)
 
—

 
—

Other tax rate and tax base differences
 
(84
)
 
(132
)
 
(109
)
Other items not chargeable
 
(62
)
 
(54
)
 
(79
)
Impairment
 
135

 
—

 
16

Non deductible losses on disposal of businesses
 
6

 
—

 
—

Other non deductible exceptional items
 
—

 
12

 
9

Other items not deductible(i)
 
211

 
231

 
238

Changes in tax rates(ii)
 
45

 
(54
)
 
(371
)
Fair value adjustment in respect of assets held for sale
 
—

 
1

 
—

Adjustments in respect of prior years(iii)
 
(34
)
 
79

 
166

Taxation on profit
 
589

 
898

 
596

(i)
Other items not deductible include controlled foreign companies charge, irrecoverable withholding tax and additional state and local taxes.
(ii)
Changes in tax rates for the year ended 30 June 2020 mainly due to the Netherlands, UK, India and Kenya. Changes in tax rates for the year ended 30 June 2019 principally arose from the tax rate change in the Netherlands. Changes in tax rates for the year ended 30 June 2018 was mainly due to the application of the TCJA.
(iii)
Adjustment in respect of prior years for the year ended 30 June 2019 includes £61 million exceptional tax charge in respect of the French tax audit settlement. The £166 million prior year adjustment for the year ended 30 June 2018 is principally in respect of the exceptional tax charge in respect of the UK transfer pricing agreement.
Schedule of deferred tax assets and liabilities
The amounts of deferred tax accounted for in the consolidated balance sheet comprise the following net deferred tax assets/(liabilities):
 
Property,
plant and
equipment
£ million

 
Intangible
assets
£ million

 
Post
employment
plans
£ million

 
Tax losses
£ million

 
Other
temporary
differences(i)
£ million

 
Total
£ million

At 30 June 2018
(292
)
 
(1,812
)
 
(27
)
 
32

 
234

 
(1,865
)
Exchange differences
(7
)
 
(47
)
 
2

 
1

 
4

 
(47
)
Recognised in income statement – continuing operations
(51
)
 
14

 
(17
)
 
(14
)
 
28

 
(40
)
Reclassification
(2
)
 
(3
)
 
12

 
3

 
(10
)
 
—

Recognised in other comprehensive income and equity
—

 
—

 
(8
)
 
5

 
(1
)
 
(4
)
Tax rate change – recognised in income statement
1

 
51

 
(1
)
 
2

 
1

 
54

Tax rate change – recognised in other comprehensive income and equity
—

 
—

 
1

 
(5
)
 
8

 
4

Acquisition of subsidiaries
—

 
(5
)
 
—

 
—

 
—

 
(5
)
Transfer to assets held for sale
2

 
7

 
—

 
—

 
—

 
9

At 30 June 2019
(349
)
 
(1,795
)
 
(38
)
 
24

 
264

 
(1,894
)
Exchange differences
—

 
12

 
1

 
(1
)
 
(7
)
 
5

Recognised in income statement – continuing operations
(10
)
 
115

 
(5
)
 
7

 
27

 
134

Reclassification
8

 
6

 
—

 
(3
)
 
(11
)
 
—

Recognised in other comprehensive income and equity
—

 
(3
)
 
(16
)
 
34

 
(33
)
 
(18
)
Tax rate change – recognised in income statement
11

 
(52
)
 
2

 
—

 
(6
)
 
(45
)
Tax rate change – recognised in other comprehensive income and equity
—

 
—

 
(16
)
 
—

 
—

 
(16
)
Acquisition of subsidiaries
—

 
(19
)
 
—

 
—

 
—

 
(19
)
At 30 June 2020
(340
)
 
(1,736
)
 
(72
)
 
61

 
234

 
(1,853
)
 
(i)
Deferred tax on other temporary differences includes fair value movement on cross-currency swaps, interest and finance costs, restructuring provisions, share-based payments and intra group sales of products.
Schedule of net deferred assets and liabilities
After offsetting deferred tax assets and liabilities where appropriate within territories, the net deferred tax liability comprises: 
 
 
2020
£ million

 
2019
£ million

Deferred tax assets
 
119

 
138

Deferred tax liabilities
 
(1,972
)
 
(2,032
)
 
 
(1,853
)
 
(1,894
)
Schedule of unrecognized deferred tax assets and liabilities
Deferred tax assets have not been recognised in respect of the following tax losses:
 
 
2020
£ million

 
2019
£ million

Capital losses - indefinite
 
76

 
62

Trading losses - indefinite
 
30

 
70

Trading losses - expiry dates up to 2029
 
70

 
53

 
 
176

 
185