CAPGEMINI_REGISTRATION_DOCUMENT_2017

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FINANCIAL INFORMATION

4.2 Consolidated Financial Statements

Recoverability of deferred tax assets recognized on tax loss carry-forwards Risks identified

As of December{31, 2017, the following items were recorded in the consolidated financial statements: €1,283{million in respect of deferred tax assets, including €763{million related to deferred tax assets on tax loss carryforwards, of which €554{million in the United States, and €172{million in deferred tax liabilities. Deferred tax assets are only recognized when it is probable that the Company will have future taxable profits sufficient to recover them. Unrecognized deferred tax assets on tax loss carryforwards amounted to €228{million in the financial statements for the year ended December{31, 2017. As stated in the Note{16 to the consolidated financial statements for the year ended December{31, 2017, the Group’s ability to recognize deferred tax assets relating to tax loss carryforwards is assessed by management at the end of each reporting period, taking into account forecasts of future taxable profits. The probability of recovering deferred tax assets is primarily assessed based on a ten-year business plan, taking into account the probability of generating future taxable profits as well as an assessment by the Group and local Finance Departments of the Company’s ability to meet the goals set out in its business plan in light of the risks identified at the end of the reporting period in the jurisdiction concerned. We deemed the recognition of deferred tax assets relating to tax loss carryforwards to be a key matter in our audit due to their sensitivity to the assumptions used by management when it comes to recognizing these assets and to the materiality of their amounts. Our audit approach Our work consisted in assessing the Group’s ability to recognize deferred tax assets on tax loss carryforwards, primarily in view of: existing deferred tax liabilities in the same tax jurisdiction that may be used to offset existing tax loss carryforwards prior to their X expiry date; and future taxable profits for each tax jurisdiction that may be used to absorb previous tax losses. X We verified the appropriateness of the model adopted by management to identify the existing tax loss carryforwards to be used, whether through deferred tax liabilities or future taxable profits. To assess future taxable profits, we measured the reliability of the preparation process for the ten-year business plan, which the Group used as a basis to recognize its deferred tax assets, by: analysing the consistency of cash flow forecasts with Management’s latest estimates presented to the Board of Directors as part of X the budget process; comparing forecasted profit and loss from prior periods with that of actual profit and loss for the periods concerned; X checking that the business plan data and long-term growth rates used in impairment testing accurately reflected those used in the X measurement of deferred taxes; conducting a critical review of the assumptions used by management to prepare profit and loss forecasts for the period beyond the X three-year business plan approved by the Board of Directors. The review primarily focused on the assumptions’ consistency with the long-term growth rates used and the information gathered during our meetings with members of management. Based on current market interpretations, we also considered the potential impact of the US tax reform on the measurement of the US deferred tax assets and liabilities. Our firms’ tax specialists were involved in this work. Tax Audit Risks identified The Group is present in a large number of tax jurisdictions. The tax authorities in the countries in which the Group operates regularly ask questions relating to the Group’s position on subjects relating to its ordinary business. Tax audits may lead to re-assessments and disputes with the tax authorities. Estimates of risk relating to tax disputes are reviewed regularly for each subsidiary and by the Group’s Tax Department, with the assistance of external counsel for the most significant and complex disputes. As stated in Note{29 to the Group’s consolidated financial statements for the year ended December{31, 2017, these reassessments have not been accrued in the financial statements, as the Group has justified its position and believes that it is probable that it will win the disputes. This is the case, for instance in France, for the research tax credit for financial years{2008 to{2013. For some companies that have received approval for the research tax credit, the part relating to private customers has been rejected by the tax authorities. We believe that tax risk is a key audit matter due to the Group’s exposure to tax issues related to its presence worldwide, to the research tax credit for financial years{2008 to{2013 in connection with the specific characteristics of its business sector, and the level of judgment required by Management in estimating risk and the amounts recognized. Our audit approach Through discussions with Management, we have gained an understanding of the procedures implemented by the Group to identify uncertain tax positions and, where appropriate, provision for tax risk. In addition, we have assessed the judgments made by Management to measure the probability of tax payable and the amount of potential exposures, and the reasonableness of the estimates made for providing tax risk.

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REGISTRATION DOCUMENT 2017 — CAPGEMINI