Want to know more about the Vodafone tax story? Parmy Olson has given a good guide to it in Forbes on her return from maternity leave (congrats Parmy).
OK, it’s pretty clear if you read her story she talked to me quite a lot when preparing the story — but she has pulled the themes and links together really well.
Recommended.
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My first impression: It so resembles the enforcement regime here in the US, i.e., nobody’s home.
The actual facts surrounding the matter, those that are in the public domain. are entirely absent from the article. What use is that?
This is why you get activists storming Vodafone stores – because they do not know what the issues are. This lady has done little to enlighten the ignorant.
If people actually knew what the facts actually are, there would be little noise about this.
Richard, do you know the facts – if so why are you not writing about them instead of doing your best to whip the masses into a state of hysteria?
This isn’t a new story. It’s been going on for 10 years. International Tax Review covered the settlement in July:
http://www.internationaltaxreview.com/default.asp?Page=9&PUBid=210&ISS=25643&SID=726510
the Court of Appeal judgment in May 2009:
http://www.internationaltaxreview.com/default.asp?Page=9&PUBid=210&ISS=25386&SID=720449
and the High Court judgment in 2008:
http://www.internationaltaxreview.com/default.asp?Page=9&PUBid=210&ISS=24837&SID=708723
That’s not to talk of the coverage we’ve given to their dispute in India.
Just had to put the record straight lest people believe that this story has just arisen since the summer.
That sounds like a rhetorical question. Some of the facts are in the Vodafone accounts:
http://www.vodafone.com/annual_report09/financials/notes_cons_fin_statements/note33.html
but much more is available online, particularly this from the nice people at Pump Court Tax Chambers :
http://clients.squareeye.com/uploads/pump/documents/Vodafone222052009.pdf
One of the facts that has been ignored by Private Eye, Mr Murphy and the demonstrators in Oxford Street is that VIL held €35 billion in loans, so let’s call than £22 billion, paying interest at say 5% for 9 years taxed at 30% (less 1% tax credit from Luxembourg), which doesn’t get anywhere near £6 billion, but is a little higher than Vodafone’s provision. As HMRC said, the £6 billion tax bill sounds like an urban myth.
@Ralph
Thanks Ralph
And of course those writing about Vodafone Essar in India have conveniently forgotten to include the basic fact that the reason Vodafone is in a spot of bother in India is not because of tax avoidance but they did not withhold tax from the purchase price of the Hutch business from Hutchison Telecom as Hutchison contended there was no tax liability on itself on transfer of the business.
Should Vodafone end up paying the tax on behalf of Hutch, I would imagine that they would reclaim such amount from Hutch – otherwise why would Hutchison’s counsel be sitting in court.
@Alex
Read it and you see Vodafone was seeking to abuse the spirit of the law
Unambiguously
That’s why they paid
And whether £6 bn or not I can’t comment – and haven’t
What I do know is that if Vodafone provided £2.2 bn that was what they expected to pay – at least
And that still does not explain the oddities of timing – and Osborne’s involvement
Your defence is in other words spurious – and those complaining at Vodafone’s conduct have entirely reasonable grounds for doing so
Unless you think abusing the law is ethical
Which law? There are 2 laws at issue here: UK law and EU law. Reading the judgement of the ECJ Advocate-General in the Cadbury Schweppes case which is referred to in the Vodafone judgement is particularly informative:
“I therefore find that the establishment by a company which is resident in a Member State of a subsidiary in [the International Financial Services Centre] for the avowed purpose of enjoying the more favourable tax regime applicable there does not in itself, constiture an abuse of freedom of establishment.”
That is all I can find on abuse, ethics or morality. All the rest appears to come from the voices inside your head.
@Richard Murphy
Perhaps the HMRC were trying to abuse the law. maybe they didn’t understand the complexity of the interaction of EC Treaty Law and the UK tax code. Maybe that is why they settled.
Where your argument falls completely flat is that HMRC have agreed to display the CFC regulations to Vodafone for the future – what does that tell you? And no it doesn’t mean that George Osborne has done somebody a favour so he can go India for a jolly.
It tells you that Vodafone were not abusing the law. Now if you think I am talking nonsense and that HMRC have acted outside their authority and, as you have indicated on more than one occasion, at the behest of Osborne, why don’t you a like minded people institute a judicial review of the decision as an interested taxpayer. Why not put your money where your keyboard is. If you are right it should be a mere doddle in the High Court.
There is no such thing as the spirit of the law, if there was, the spirit would be clearly written into the legislation. What is your “spirit” is not necessarily my “spirit”.
Why don’t you have a look at the motive test in the CFC rules and also have look at Art 43 of the EC Treaty.
Then read both the decision of the High Court and Appeal Court in Vodafone 2 – particularly where the CA held that the CFC rules should be interpreted as if there were a new (additional) exception which was to be applied retrospectively. This exception applied only to companies actually established in another EEA state which was involved in genuine economic activities.
As Vodafone was refused leave to appeal to House Of Lords/Supreme Court – the matter was referred back to the First Tier Tribunal for a decision on whether or not the Lux subsidiary was properly established and involved in genuine economic activities. At this stage HMRC decided to settle.
Now, if I am wrong in my understanding of the case and the legal issues involved – and you are right about this being no more than a conspiracy by the government and particularly Osborne, and have evidence to support your views, you owe it to the public to take this matter further, preferably through the courts so there can be no bar room deals hatched to hide the truth.
@Alex
Read the case
The decision is clear: Vodafone abused the spirit of the law – and the judges read words in which they said the spirit required – and were capable of discerning that they were required
They knew the spirit of the law existed and followed it
Vodafone tried to play the letter and failed
And so lost the case
Odd then that the UK caved in, isn’t it?
And have you ever read the Halifax ruling? If you had you’d realise how absurd your claims are
@JayPee
Another massive representation of the facts
India’s claim is that tax on capital gains was due on what is in effect a residence basis – i.e. where the asset is
Hutchinson and Vodafone tried to artificially relocate the asset to a tax haven in India’s opinion
India objects to that, sightly so in my opinion
That’s the reality of this case
Please tell the truth
It does help life along
@Hugh
Candidly the whole premise of your argument is bonkers (and that’s being polite)
HMRC won the court cases
And got aid £1.25 billion
And were abusing the law?
With the greatest of respect, are you mad? Anther explanation is hard to find for such bizarre comment
No wonder in that case you also fail to understand that the protest is systemic as much as specific – which is also precisely why a judicial review would resolve nothing
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I recall that Richard Murphy appeared to regard the ECJ Cadbury Schweppes decison as “good news” subject to some caveats (and changes to the law) in case HMRC ultimately lost in the 1st Tier Tribunal.
“It so happens that I have no real problems with that. What this says accords with what I and the Tax Justice Network have said for some time, which is pay your taxes where you earn your profits, and that wholly artificial arrangements are unjustified?”
So what has changed with Vodafone?
I also have difficulty with your allegation that the Vodafone settlement is down to George Osborne/and or the Tories:
– CFC reform has been a major agenda item with HMT/HMRC over the past 12 months (tons of discussion documents and stakeholder meetings).
– It was announced in February 2010 that the taxpayer and HMRC had agreed to settle and so the appeal to the tax court was withdrawn.
-HMRC held a meeting earlier in the year to discuss settling all outstanding CFC issues. Again before the election and at a time the government was desperate for cash.
Check the above with HMRC/HMT – most of the above is already on their website.
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@Alex
So long as you post abusive comments promoting tax abuse you will not have comments posted on this site
@Justin
With the greatest of respect, I do not think that any of this changes the facts.
The deal was not announced until July – just before Osborne went to India.
I do not think that was a coincidence
And nor do I think the settlement was agreed a great many months earlier. That just does not feel likely. If it was, why did they wait until the day before the interim results is to announce it?
@JayPee
While I am totally against tax avoidance, like many Private Eye completely overestimates it. Their article is a very poor piece of financial analysis. They confuse the income that has been paid in to Vodafone’s Luxembourg entity over several years from the continental European operations, which has actually been taxed at 21-23% Luxembourg corporate tax with profit. Only profit is taxed not income. Profit is income minus costs which will be about half the income. Secondly, they do not convert from Euros to pounds. Finally, they quote a tax rate of 1% for Luxembourg when the rate will be in the 21-23% range I mentioned above. Then bundle all this with a Euro180bn take over of Mannesmann. This was paid for in shares by a UK entity of Vodafone (V2). No tax is liable on this. What they used the Luxembourg entity was to hold Mannesmann’s assets and when they disposed of most of the assets they made a capital gain but paid the Luxembourg capital gains tax which is about 7% lower than the UK rate. This is what HMRC were trying to recover. The asset sales would have had to have generated a profit of Euro129 billion (bn) to generate a tax labiality of £6 bn. This is clearly ludicrous — for instance they made a profit of £5bn on selling Orange which Mannesmann valued at £20bn. Given that Mannesmann was valued at Euro180bn and Vodafone sold about half the company and if they made the same level of profit as they did on Orange, which is doubtful, the tax due plus interest would be about £1.25bn they ended up paying. No one knows anything for certain but these are reasonable assumptions. We certainly should demand that the books are opened up.
But a poor bit of reporting has led people to believe that the cuts can be overcome by stopping tax avoidance when in fact the best estimates is that it will take in £25bn a year of which half is individual tax avoidance mainly through personal contributions to pensions which will hit a half of society. Much more radical measures are required such as a progressive redistribution of wealth and taking control of the banks and Oil industry. Measures that require challenging the way society is run.
This campaign’s lack of accuracy can be summed up when they equate the welfare cuts with £7bn which is in fact the additional cuts on top of a £11bn already announced.
The analysis that private eye has come with, will unfortunately put a question mark on all alternative approaches to stopping the cuts.
Raphie
You may know more about this than I do but my understanding was that the case concerned the interaction of the CFC rules with the freedom of establishment in the EU. As such the CFC rules would not be relevant to any chargeable gains.
In practice they would not be relevant to dividend income in the Luxembourg sub that had already suffered tax in a higher tax country (eg Germany) though I am not sufficiently in touch with the tax legislation of the various European states. What would be relevant is the income coming into Luxembourg that had not suffered tax elsewhere. To that exent though I suspect that you are right in that the Private Eye analysis overstates the position.
However I think that the technicalities are something of a sideshow. We know that HMRC had won the case in the Court of Appeal but chose to settle with Vodaphone before any appeal to the Supreme Court which might have settled the issue for other tax payers as well.
If Private Eye are correct, there was dissatisfaction within HMRC about the settlement but obviously that is based on off the record conversations with HMRC officials.
We also know that Vodaphone themselves had provided £2.2bn in respect of the settlement which must have been more than a worst case remote likelihood from Vodaphone’s point of view.
Why then did HMRC settle?
@Iain
You make an excellent point. I think there is some deliberate obfuscation going on in the comments of the previous commentators. the devil is not in the detail of this case. The devil is in the management of this case. That is the critical issue. I am not worried if 6 billion is not paid: I’ve always doubted that that figure was correct and have never endorsed it explicitly. If it is just 1 billion not paid then I am worried. And so, are others, rightly concerned about this issue and its political implications.
As ever, neoliberals may wish to divert attention from the big picture by attention to minutiae, but as ever, they show either their deliberate intention to mislead, or their lack of a broader perspective by doing so