Vodafone taxes

Erm, it wasn't £6 billion. That was an invention by Private Eye. Vodafone Luxembourg did take over Mannesman. And lent the company money: the interest from this was tax deductible in Germany and then taxed in Luxembourg. Voda L also received dividends from what was now V Germany. These were taxed in Germany.

Private E looked at the account and said, hey, there's 18 billion there, UK tax is 30%, so 6 billion must be owed.

They missed the bit that there were taxes already paid on this. Thus we get in the V UK accounts a *possible* tax charge of £2.2 billion.

The UK has some rules called Controlled Foreign Company rules. (CFC). These say that if you're a UK company and make profits abroad, then you can of course keep them abroad. However, if you keep them in a country where the tax rate is less than 75% of what the UK rate would have been, then you've still got to pay UK tax.

And the tax you have to pay is the difference between UK tax and the tax you've already paid. Given the difference in tax rates between Germany, UK and Luxembourg, something like £1.25 billion is a generally accepted tax expert (ie, not froth mouthed lefty playing up to UKUncut) estimate of what the CFC rulse say Vodafone should have paid.

Ah! But now we have the EU rules on freedom of establishment. These say that you can set up anywhere in the EU and do business anywhere in the EU. And these rules conflict with the UK's CFC rules. So, who is right? The EU or the UK?

This case went to court to the Special Commissioners (err, a junior court really, for tax matters) and they said that Vodafone was right. EU rules meant that CFC did not apply. On to the High Court. Same answer. HMRC appealed to the Court of Appeal who said, "well, mebbe. If Voda L was a real business, you know, people n' things, then EU law wins. If it's entirely a tax dodge, then UK". *Entirely* note.

At this point HMRC settled. Because there are another 100 or so UK companies with similar arrangements. And the last damn thing HMRC wants is for the Supreme Court to entirely gut the CFC rules. At least, having settled, HMRC will get some money out of all of them, they would have got nothing if they'd gone to that last court and then lost.

Finally, one delicious point. All of this tax is about what Vodafone made selling phones and air time to Germans, in Germany, from German shops. UKuncut is saying they should pay tax in the UK on that. But when they whine about Boots, they are saying that a Swiss company should pay UK tax on it's profits from selling things from British shops to British people in Britain.

It's gotta be one or the other, eh?

Just to clarify. There never was a £6 billion bill. And the dispute was over which law prevails, UK or EU. HMRC settled rather than actually hear the answer to that.

Oh, and UKuncut are the usual teenage trots with absolutely no idea what they're shouting about.

But going on a demo is fun right, and there's chicks....

Not quite

The dispute is that Vodafone used an off shore firm to purchase Mannesman and then used a Luxembourg subsidiary to pay taxes on the profits.

Initially HMRC considered this arrangement to be counter to the existing anti-tax avoidance rules and wanted to pursue Vodafone, but then the senior HMRC management changed their legal team and rolled over.

If you believe what the papers write a lot of HMRC staff felt very let down by the decision to change lawyers and not to pursue Vodafone for the money. They felt that there was a clear breach of the rules but no political will after the election to pursue Vodafone.

I'll call it legal when

everyone on PAYE can get a sweet tax avoidance scheme.

If that was ever possible you can bet your bottom dollar that the government would close the loophole pretty damn quick.

Remember folks, tax is for the little people.