According to the FT this morning:
Shareholders in Vodafone are set to receive one of the biggest ever payouts from a corporate asset sale, with the UK company planning to hand back some $84bn in cash and shares after striking a deal to sell its stake in its US mobile phone business.
Now, we know this deal is being done in the Netherlands to avoid tax on it, and we know that will work.
We also know coincidentally that there would be no tax to pay on this deal if it had been undertaken in the UK, but that's irrelevant, because it wasn't. I have criticised that exemption, but it would not have applied in this case.
What would have applied until 2009 was a charge to tax in the UK on the dividend received from the Dutch subsidiary of Vodafone, less any tax paid in the Netherlands on the income giving rise to the dividend (in this case, nothing). But what happened in 2009 was that a law, which had been subject to consultation before the 2008 crash, was brought in which exempted those overseas dividends from tax in the UK. That law was enacted because the UK's plcs lined up to say they would leave the country if the law was not changed. And Brown and Darling, in the face of companies like Shire plc queuing up to move headquarters, if not real commercial operations, outside the UK, caved in. Osborne has given much more away since, deliberately, and with relish.
The result is that in this case we will end up with double non-taxation: no tax in the Netherlands and no tax in the UK. This is exactly the problem at the heart of corporation tax worldwide now. And although Vodafone has done nothing wrong in law to exploit the opportunity I am, I maintain, absolutely justified in saying that this is an exemption that was ill advised in the first place (and which proved the whole folly of asking big business its opinion on tax - as happened in this case - as they will always advise solely in their own interests) and which should now be changed. The aim of this relief was to encourage the use of the the City as a mergers and acquisitions base. We now know that was socially useless activity by socially useless people that failed to add economic value to this country.
And the cost in terms of tax lost on that Vodafone dividend? Over £12 billion. That's what has gone by the wayside.
And before some say that small UK shareholders will pay some tax in the UK on this, let's please note that large parts of the dividend will go offshore where they won't be taxed either, making it triple non-taxation. No one, anywhere, can justify that.
This is the perfect example of why the world's corporate tax systems are failing and are in need of urgent reform, now.
But I am not optimistic that the G20 will act and yet I see this as an issue of the highest international priority because these sorts of sums, floating around the world tax free are massively economically and socially disruptive and are clearly being used to undermine the democratic process by highlighting the contempt that the business world has for accountability to that process. Let's be under no illusion about the harm that causes: it is considerable.
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Dear Richard
Doesn’t Vodafone have large capital losses from Mannesman, so even if this had been a “UK tax event” these losses would have absorbed, a large part of the current capital gains?
Regards
You know their tax affairs that well?
And how a loss – did they sell Mannesman?
The problem with big business is it’s often run by small children, or those with the same mentality. These short-sighted individuals can’t see beyond their immediate greed to the consequences of it. Ask a small child if it wants too many sweets before bedtime and it says yes, unmindful of the stomach-ache which will surely follow. Similarly ask senior businessmen if they’d like to pay no taxes ever and their little eyes will light up as they chant “Coo, yeah!” in unison, unmindful of the social breakdown which would surely follow. A properly functioning economic environment has to exist for them to to be able to profit from it but in their dealings they operate as if a complete abrogation of any responsibility towards maintaining that environment were their perfect right. Their attitude presupposes there’s an authority ready and willing to reign in their excess and maintain a very necessary social balance. Instead, in this country at least, in Cameron, Osborne et al we’ve put children, and emotionally stunted children at that, in the highest offices in the land. They’re all of them little boys together. It’s very definitely time to come in now, children – but where will we find the necessary authority to make them?
I fear you’re right
Indeed – these are people for whom the sense of the marginal utility of each extra billion never diminishes – perhaps this ‘law’ needs to be rethought! This triple non taxation is happening at the same time as our poorest people are being evicted from their houses, or threatened with it and disabled people are being being told by rentier thugs like Lord Freud that they should move or get a job they cannot possibly do! I never thought this country could sink so low and there is more to come!
Company directors by law have to do what’s best for their shareholders. Therefore expect them to avoid paying corporate tax whenever they can. And personal tax too — it’s just a short step. And while they’re doing this, they focus on share price growth rather than revenue/profit growth because of their share options and because it’s easier to achieve through real-terms cuts in employee salaries and benefits. And share buy-backs of course, another action that adds zero value to the company while boosting the directors’ share options.
It’s not Vodafone’s fault, it’s the fault of governments for not creating a reasonable and workable tax regime. In the meantime, HMRC is trying ever more desperately to bully minute amounts of tax from small businesses just because it can. A great example recently was HMRC challenging the “business expense” claim for the use of an apartment over a hotel for a long-term assignment because it may have provided an element of personal benefit. Do you honestly think any of this will get fixed?
The same old nonsense is rolled out again – which has no foundation in fact
Please read this http://www.taxresearch.org.uk/Blog/2013/01/07/companies-do-not-have-a-legal-duty-to-maximise-profit-or-to-avoid-tax/
Of course it can be fixed
But not with Osborne in charge
Thanks for that reference Richard. Clearly:
‘the impact of the company’s operations on the community and the environment’
seems to hardly reflected corporate attituded.
You have deliberately misinterpreted the Companies Act .
And furthermore , you have changed your tune from defending the Guardian to attacking Vodafone.
Do you honestly believe you should be taken seriously???
I have most certainly not misinterpreted the Companies Act – find me a proper lawyer who disagrees
And I have not attacked Vodafone on this issue – as you will note
I have attacked political choices by Labour if only you were not so blind as to not notice
I do not ask to be taken seriously – lots of people seem to take me seriously
The underlying problem is that we tend to think of tax as a cost and not as contribution to society. In both my role within an MNC and personally that is certainly in my mind.
Factually tax is a cost to me or to my employer, (PAYE etc. reduces my net take home pay) but we seem to lose sight of the fact it also contributes to society. And I wonder why that is. I suspect it’s partly a cultural thing.
The Japanese for example, certainly view tax differently. They view tax as an obligation and are proud (I can’t think of a better word) to pay tax. They seem to see tax as a contribution to society, so it’s a good thing to pay tax. We in the west just don’t think that way. Why is that?
My idea is that it has a lot to do with respect. Clearly the Japanese have a strong culture of respect for their elders and superiors. So I would imagine they respect their government and in turn therefore respect and trust them to make good decisions as to what to do with the tax they receive and that they will put it to good use for the benefit of the community.
I am not sure we have that kind of model of respect in the west. Do I trust and respect the politicians? Well not really? Do I think they will put my tax to best use? Well again, no not really. So it’s no wonder I don’t view tax as a contribution to society when I don’t trust that it won’t just be frittered away.
Maybe it’s just me, but I don’t think so. Until our politicians earn our respect, I am not sure that our societal attitude towards tax will change.
Clearly this is a very simplistic take on the issue and there undoubtedly a lot of other factors!
It’s quite a good take on the issue
Do you think that Vodafone should voluntarily pay the tax which would fairly be payable on their receipts from this sale?
No. Nothing I have said implies so
I am asking for a change in the law in the future
Mr. M., I know you’re a busy man but can I just ask, suppose the law was changed as you wanted so firms in the UK had to pay more.
What happens if they up-sticks to somewhere they don’t have to pay so much tax in? Would we still be able to tax them if they sacked thousands of workers and set up a plant abroad?
That happens now