The Bureau of Investigative Journalism has reported today that:
Vodafone's accounts suggest it attributes billions of pounds in profit to branches in the tax haven of Switzerland — but an undercover investigation indicates hardly any business is done there.
An undercover operation by the Bureau of Investigative Journalism and Private Eye has revealed that Vodafone's Swiss branches are run by a single part-time bookkeeper, indicating their main purpose is tax avoidance.
In a meeting with reporters posing as consultants, Vodafone's Swiss branch manager revealed that:
- He is primarily a bookkeeper;
- Vodafone takes up less than 5% of his time;
- He is not involved in decision-making but follows orders from Vodafone's Luxembourg office;
- Vodafone has a dedicated room in his office but it is almost always unoccupied.For one subsidiary, profits worth $2.5bn (£1.6bn) were taxed at less than 1% in 2011The revelations suggest the Swiss set-up is artificial and should not escape greater scrutiny from the British taxman.
There's nothing terribly surprising about this. Remember the whole purpose of offshore is to record transactions that really take place elsewhere. I explain this at some length here. Vodafone would appear to be confirming what we already know - that offshore is just a giant accounting exercise designed to hide money from view. But it's nice to have the evidence.
And if we had full country-by-country reporting we'd also know this for sure.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Given the inter-region revenue segment figures here
http://www.vodafone.com/content/annualreport/annual_report11/downloads/vf_ar2011_segmentanalysis.pdf
it does rather beg the question as to how at least 2.6bn of revenues were pushed into Switzerland and why Switzerland was not considered material enough to report separately given that IFRS 8 requires revenues to be reported on a company by company basis.
IFRS does not require country-by-country reporting
It merely requires reporting on the data sent to the board
Boards pretend they do not get country-by-country reporting as far as I can see
I don’t, candidly, believe them
You are not entirely correct – the entity wide disclosures per IFRS 8.33 in respect of country by country revenues and non current assets (but not profits before tax as we would bothe wish) – are to be based upon the financial information that is used to produce the financial statements – that is not the same as the segmental information which is reported to the board (or more correctly the Chief Operating Decision Maker). There is a get out if the necessary information is not available and the cost to develop it would be excessive – but if that get out is used it should be disclosed. There is also a get out on grounds of materiality (as there is with everything in the accounts) – but in the case of Vodafone I wouldn’t want to answer the question as to why they didn’t thing it material to disclose the revenue from a country that contributed in excess of 20% of its post tax profits.
I agree geography is there – but it need not be by country – region will do
Not the case – I’m afraid 8.33(a) says the figures have to be given by the entity’s country of domicile and for all foreign countries from which the entity derives revenues – regions are not mentioned.
I agre
But a) it’s never deemed material – and the company decides and b) much of this is intra group and so remains hidden
Hence need for mandatory country-by-country reporting
But Richard I thought your proposal was to establish country by country reporting using an IFRS. To use some other framework would probably take years in terms of legislation, the audit framework etc. I think it would be quite easy to take IFRS 8.33 and add in measures such as revenue from group companies, profit before tax and after tax – and then just say that all of the measures are required to be required to be disclosed for each country where any one of the measures is material in relation to said total for the group. I think this would address all your concerns – apart from companies not reporting what they should (but that would exist with mandatory reporting as well). It would also have the benefit that it could be added as part of the IFRS annual improvements standard (or added to the EU version of endorsed IFRS version of that annual improvements standard – which I guess would be politically easier to achieve than convincing the IASB).
We tried this
They refused to consider it saying that was not the purpose of IFRS 8
Been there, and got the T shirt, I’m afraid
hence the focus on the EU now – who seem rather keen on this data right now and are the real power behind the IFRS anyway, whether they recognise it or not
Billions being handled by a chap doing a bit of part time in a small back room office. It may be tax avoidance, but you have to admit that it is efficient tax avoidance. Could we out source The Treasury on this basis?