Vodafone, still fighting in vain

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Vodafone has had its hopes dashed of securing a swift resolution to its dispute with the UK authorities over a potential £2.5bn tax bill.

Vodafone's attempt to stop HM Revenue & Customs claiming tax on its holding company activities in Luxembourg was rejected yesterday by the Special Commissioners, a form of tax court.

As the FT noted:

Vodafone's disclosure of potential tax liabilities of £5bn in November 2005, including those affecting the Luxembourg subsidiary, contributed to a 10 per cent fall in the group's share price at the time.

Vodafone's dispute is now likely to continue for some time and involve a European Court of Justice (ECJ) hearing.

This is not good news for Vodafone but is for HMRC. When Vodafone began this challenge the ECJ was finding against governments in almost every case. Now it has realised that this is absurd: tax law is there for a reason and has to be upheld unless blatantly in contravention of EU law. There's no guarantee Vodafone will win this one. Which would be good news because Luxembourg holding companies are classic tax abuse mechanisms.