As the Telegraph reports this morning about Vodafone's accounts for the year to March 2012:
The company saw its global corporation tax bill go up by £300m to £2.3bn, but none of that money went to the exchequer in the UK, where Vodafone takes several hundred millions of pounds from more than 19m customers each year.
Instead, the mobile operator's British corporation tax bill fell to zero from £140m in the year to March 31, 2011, despite an increase underlying earnings before interest and tax at its UK operation rose from £1.2bn to £1.3bn.
Although Vodafone has acted within the law, its minimal bill in Britain is likely to reignite anger over the group's dealings with the taxman.
Now this, of course, has nothing to do with the £1.2 billion settlement of a decade-long dispute with HMRC in 2010. This has all to do with Vodafone's activities in the UK in 2011/12.
And active it was, as the Telegraph makes clear.
And let's be clear, overall as profitable as it was, as the accounts show. It had revenues of £46.4 billion and net profits before tax of £9.5 billion. It made an operating surplus in the UK of almsot £1.3 billion.
But it paid no tax here.
Why? Well, we have to guess about that but I note financing costs rose rapidly this year to a net £1.5 billion and my guess is that is what wiped out the UK profit. And that's because George Osborne only wants to tax profits arising in the UK but is more than happy to give relief for costs arising anywhere in the world in most cases.
We'll have to get used to it: a large company paying tax in he Uk is going to be an increasingly rare phenomenon as Osbrone has made sure his friends can use the UK as a tax haven.
And who will foot the resulting bill to pay for the UK deficit? Why, you will, of course! By paying more tax and getting fewer services.
Business of course still gets all its services - and demands more by the day. It's just they won't pay for them. You do. And that's not by chance, that's by design.
This is the new world of big business taxation.
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Richard,
The CFC changes in FA 2012 will only be reflected from the 2013 accounts. The lack of any corporation tax liability for the 2012 accounting period is a direct consequence of the 2010 sweetheart deal between Vodafone and Dave Hartnett.
Remember that Vodafone announced that deal with this statement on published this statement on July 23, 2010: http://www.investegate.co.uk/article.aspx?id=201007230700108032P:
“On 22 July 2010 Vodafone reached agreement with the UK tax authorities with respect to the CFC tax case. Vodafone will pay £1.25bn to settle all outstanding CFC issues from 2001 to date and has also reached agreement that no further UK CFC tax liabilities will arise in the near future under current legislation. Longer term, no CFC liabilities are expected to arise as a consequence of the likely reforms of the UK CFC regime due to the facts established in this agreement. The settlement comprises £800m in the current financial year with the balance to be paid in instalments over the following five years.”
So the Sunday Times story you referred to relates to this part of the statement: “Longer term, no CFC liabilities are expected to arise as a consequence of the likely reforms of the UK CFC regime due to the facts established in this agreement.”
The CFC changes you alluded to refers to this part of the statement: “Longer term, no CFC liabilities are expected to arise as a consequence of the likely reforms of the UK CFC regime due to the facts established in this agreement.”
So you could argue that the effects of the 2010 sweetheart deal are now becoming more obvious. Questions remains for example, how come Vodafone was given a clear indication in July 2010 of the as then unpublished government proposals to reform the CFC regime in order for them to have been in a position to include it in a deal with HMRC and indeed to comment on their likely lack of future liabilities in their statement? Also, is the deal ultra vires because of the forward tax provision which the HMRC whistleblower argued was in breach of the law established in Al Fayed and Others v Advocate General for Scotland (representing the Inland Revenue Commissioners) [2004] STC 1703?
http://www.guardian.co.uk/money/2011/dec/06/hmrc-tax-deal-vodafone?INTCMP=SRCH
The NAO are due to publish their second report on this and other tax deals on Thursday, following the Public Account Committee’s acceptance of the whistleblower’s complaint that the first report was a whitewash. Influential commentators like you should keep an eye on that report because I understand that Vodafone has prevailed ….
All agreed….
But I doubt that is why no tax was paid in 2011/12
I think my explanation more likely – and it does not relate to CFCs
How can a deal include a provision that says that “no further UK tax liabilities will arise in the near future under current legislation” and that “no liabilities are expected to arise as a consequence of the likely reforms of the UK regime due to the facts established in this agreement”? Surely, that’s for Parliament to decide, or is it not?
That’s why it is suggested to be ultra vires – hence the review
Remember – HMRC have acted ultra vires before – on Mohammed Al Fayed
“Vodafone said it had paid the HMRC about £700m in payroll and other taxes last year”.
So the VAT paid by customers and the PAYE and NIC paid by staff are in lieu of corporation tax?
We all know this is a completely bogus argument!
you’re right, Richard. Osborne told us that the cut in CT rates will encourage investment but the big companies are hoarding the savings!
The £1.3bn in the UK is EBITDA, so before depreciation and amortisation, so there would be an impact from capital allowances. I would imagine capital expenditure is up significantly in the run up to 4G services. And I would imagine UK head office costs are not included in the UK operating result, but in the group result, so there would be some impact from that. But still find it surprising that there is no taxable income.
This is a very depressing situation for the ordinary taxpayer. The corporates have completely captured business taxation policy and we seem powerless to do anything about it. Larry Elliott’s new book aptly titled Why Britian Will Have A Third World Economy by 2014 will probably make very interesting reading (I read an extract from it in the Guardian’s weekend magazine). I believe that our present government has no intention of promoting any kind of growth or development policy for the UK and has already taken the decision to ‘write off” large tranches of the population living in the more disadvantaged areas of the country. Elliott highlighted several features which we have in common with developing countries and summarised our situation as one of weakness , ‘dependent on outsiders for finance, skilled workers and energy supplies’. When I read that the UK government now has a tourism strategy, ‘in the manner beloved of developing countries the world over’, the reality of our desperate economic situation flashed before my eyes, as I used the Gambia’s Tourism Masterplan (funded by the African Development bank) as the basis for my Masters dissertation on tourism as a significant driver of economic growth. I never contemplated that my personal and academic knowledge of the Gambia would one day provide insights into the future of the UK!!
“Why? Well, we have to guess about that but I note financing costs rose rapidly this year to a net £1.5 billion and my guess is that is what wiped out the UK profit.”
This is not the reason at all actually. In the UK a infrastructure business is allowed to off set spending on infrastructure against profits. Considering last year Vodafone invested £1.5m a day in the UK’s telephone/internet infrastructure, there was a complete right off of profits.
The situation is actually a lot more benign than it seems and isn’t really news.
Pardon?
Have you got your facts right?
What 100% allowances are you referring to?
“Considering last year Vodafone invested £1.5m a day in the UK’s telephone/internet infrastructure”
??????????
“O2 and Vodafone will pool their mobile phone masts and antennas to slash costs and reduce the number of physical networks in Blighty to two”
http://www.theregister.co.uk/2012/06/07/vodafonica/
Quite so
I really don’t get this claim
I am not defending Vodafone but they pay UBR on the premises they occupy and they pay the PAYE and NI nominally paid by their employees.
All the discussion on Corporation Tax avoidance leads to the conclusion that it is no longer fit for purpose in these days of multi-nationals. Governments should focus their efforts on taxes that cannot be avoided, like those on real estate. Those who object to tax avoidance should focus their efforts on getting governments to reform their tax systems so that the bulk of public revenue is raised in ways that cannot be avoided.
Income tax is also going down the same road with increasing numbers of footloose individuals. Reality needs to be recognised, not fought.
Wrong again Henry
I agree with Henry that it is ridiculous that govts ignore the one tax which cannot be avoided and which could raise so much revenue (as well as achieving many other benefits). However, the single-tax mantra is equivalent to small government. It would be good to get some real research to show what percentage of GDP is attributable to rent and then consider the next best taxes to provide the necessary additional revenue, rather than the present policy of trying to pluck feathers. No sign that any govt is willing to fund this research though.
Carol
Now that would be interesting research
Do you know if anyone has ever tried it?
If not I may have to add it to our programme – if anyone will fund it
Richard
Just being pragmatic, Richard.
Or naive
Carol, what should government be any bigger than necessary? If almost nobody was poor, what would there be left for government to do?
Oh come
Please do not loose all your credibility
Unless that is you want no one to take you seriously
Richard, you are living a sheltered life. The anarcho-capitalist barbarian hordes are baying outside the gates. If the question is not asked ie what is the proper function of government, then soon will come a new dark age. And the relief of poverty is not a primary function of government. The PREVENTION of poverty is a primary function of government, and from that is derived another: to ensure that all have a means of providing themselves and their families with a livelihood. Which is not quite the same thing as giving everyone a job.
And you think I don’t know that?
Where have you been?
Henry seems to think that government has nothing useful to do except relief of poverty. He presumably agrees with the libertarian right that all public goods and services we enjoy today (and I would say we need far more of, including the provision of decent pensions and care for the elderly + free education) are better provided by ‘the market’.
One way to find out about % of rent/GDP would to have a complete Land Registry. Once we know the total value of land we would know a large amount about the amount of economic rent.
And just because LVT isn’t sufficient doesn’t mean it isn’t necessary for a fair, efficient tax policy.
As well as asking “What is Government for?”, we need to ask “What taxes are ethical, and make economic sense?”
Taxing something that we want more of (jobs, profits, ‘value added’) seems on the face it absurd. I suggest that people only put up with such taxes because (a) they accept that Government needs money – which takes us back to Henry’s question – and (b) they know of no other way to raise that money, in sufficient quantity and certainty.
If people knew about ‘economic rent’ (which has been pretty efficiently written out of standard text books) they would see straight away the beauty of the idea of using to fund government. As for how much it can yield, how much do you want? Just keep collecting it and see how far it makes sense to go.
Meanwhile history shows that civilisations since the earliest days go down the proverbial tubes if governments allow rent to be privatised to the extent that we are seeing now.
Rentiers contribute absolutely nothing to the sum of human happiness, other than to themselves. The taxation of rent is a large part of the solution to our present-day problems, not least because it is ethically sound. It is also efficient and fair, although of course there are significant transitional issues – which is largely why even those who understand the benefits quail at the prosepcts of actually making the shift to ‘Smart’ tax.
People avoid other taxes because they know they are inherently unjust – and because they can, with increasing ease. Fingers and dams come to mind…..
I agree with you
Indeed I discussed that very issue in Helsinki today
But this is bigger than LVT
There are a lot more rents than that
What are the other rents? Patents and copyrights are comparable monopoly profits. Radio spectrum is “land” in economics. Domain names are another.
It is impossible to give a straight answer to the question of how much land value there is. This is because taxes depress land value. If the taxes are removed the land values go up. This is because land value is a residual value after all the other expenses have been met. That is standard land economics theory: rent is a residual. The Enterprise Zones demonstrate this neatly: the landlord takes all the benefit of zero UBR in higher rents.
Tax can be regarded as the collection of land rent by other and less efficient means than doing it directly. The may be good reasons for that – the deadweight cost of alcohol taxes results in less drinking, which is generally considered desirable.
Oh how about the rent on labour derived from its exploitation due to immobility at a national level?
Listen to China and India on this one – as I have in the last day
Labour can only be exploited if all land is enclosed and its rental value retained by whoever has enclosed it, the landowners. If the rent of land is collected through a substantial LVT, landowners will not hold on to unused land and it will become available to others.
In places like Guatemala there are huge tracts of underused fertile farmland and the owners employ armed guards to prevent poor starving people from occupying them and growing their own food. There was a TV programme on the subject in the 1990s.
The effect of this enclosure is to drive up land values. In most contemporary situations the capitalist is also the landowner. You are right that the rent is effectively paid by labour. But the beneficiary of this is the landowner who RECEIVES the benefit ie rent from the exploited workers. If workers are available to be exploited, then this drives up land rental values compared to what they would be if they were free to go off and work on their own account.
Nonsense
That’s a simplification way, way too far that misses so much you’re wasting time
[…] me as a wonk. But it’s also vital. This is about how and why a country gets to tax a profit. And as we saw only yesterday, profitable companies are all too good at making sure their profits are not in countries that need […]
“It is possible that there is more to this story than I’ve outlined. We’ll undoubtedly find out more in coming days: but my supposition at present is that this is simply nonsense from journalists who just do not understand how corporate taxation works in the EU”
http://www.forbes.com/sites/timworstall/2012/06/11/nonsense-allegations-about-vodafone-avoiding-uk-corporation-tax/
Ah, that tax guru, Worstall
The arch proponent of abuse
And a fundamental anti-democrat who relies on rules to abuse – as libertarians do
Whereas the journalist knew substance when he saw it – the substance of a con trick
That’s the difference between Worstall and the rest of us
Some of us have eyes to see
Some just see the rules – and ignore who made them, why and what abuse they allow
Study your enemy, not everything Worstall says is nonsense. There is some truth behind what he is saying and that is what makes him plausible. If the “libertarian” arguments are to be demolished, those truths much be acknowledged.
There is a fundamental contradiction within “libertarianism” which socialists are not picking up on. The whole intellectual structure of “libertarianism” is built on quicksand.
There is remarkably little in what Worstall says that is true
That’s because he confuses liberty with licence – and one is freedom and the other the freedom to abuse
Worstall supports LVT, that’s the only plus but it is always true that your enemy’s enemy is not your friend.