This is a great explanation of the Vodafone tax case.
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Isn’t this just another example of the flagrant misuse of the convention which allows interest payments on debt to be treated as an allowable business expense? Isn’t it time a limit was placed on the gross amount of interest that can be deducted in any single year by any company or group from their tax liability?
Re David: interest payments on debt are of course taxable in the hands of the recipient.
The post is a very good summary of what is going on in the Vodafone case. However, I would pick a couple of holes…
“Of course, the missing piece in this jigsaw is how much tax Vodafone paid in Luxembourg”
Yes. That is fundamental.
“suffice to say that it is well known jibe within the industry that favourable low-tax deals with the Luxembourg tax authorities can be reached over dinner”
It is not suffice to say, at all. This is pure speculation by the author, verging on a smear.
“Note that this is only because somehow Vodafone was not paying tax in Luxembourg of 75% or more than the UK tax that would be payable”
But, the author has stated categorically earlier that they do not know how much tax was being paid in Luxembourg. How can they now state that Vodafone was not paying tax? Again, it’s speculation.
Chris, it’s not complete speculation. As far as I can see, the actual amount of tax paid in Luxembourg is unkown, but it must be less than 75% of the UK tax that would be payable or the CFC issue would not arise.
@Chris
Your argument is not relevant unless the recipient of interest is in the same territory as the beneficiary of the tax shield, which of course in most of these cases it is not; which is also why it is obviously an abuse of the system, and why reasonable folk are arguing that this particular tax shield should be subject to reasonable limits imposed by government.