Vodafone has won a key ruling in its long-running battle with the UK government over a disputed £2.2bn tax bill.

A UK judge last week sided with the cellco's argument that Her Majesty's Revenue and Customs was not entitled under EU law to make it pay the difference in corporate tax between the UK and another European country with a lower tax rate.

In other words, the UK's Controlled Foreign Companies (CFC) Act, of 1988, designed to stamp out tax domicile-shopping, is illegal within the EU as it now stands.

Vodafone triggered the CFC tax bill by buying German rival Mannesmann in 2000, through a Luxembourg holding company.

According to accountancy firms, Mr Justice Evans-Lombe's ruling is a landmark judgment, affecting thousands of companies, which have paid hundreds of millions of pounds a year.

According to reports, the judge called on Parliament to spell out the tax consequences for companies that set up a controlled foreign company in another EU country.

With so much at stake, HMRC will appeal the ruling. ®

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