Vodafone is selling its stake in US mobile network Verizon for about $130 billion according to press reports. That's more than £80 billion.
And the deal will almost certainly be tax free. No great offshore planning will be needed to achieve this: Gordon Brown introduced the substantial shareholdings exemption in 2002. The result is that Vodafone has an automatic right not to pay tax on this gain in the UK.
This is absurd: such an exemption now seems like a relic from another age when it was believed that City trading was the route to Nirvana. Now we know it isn't. And now we know that such an allowance simply encourages mergers and acquisitions, most of which are not socially useful, promoted by investment bankers, most of whom are socially useless, with the return being paid to those who are already wealthy at cost to those who have little or nothing in society, increasing all the harmful impacts of inequality in the process.
It is indisputable that tax, whilst generally a force for good in society, can produce harmful outcomes. This is one tax relief that can and does do that. It's a relief that is time expired and which needs to now be consigned to history. But will any politician have the courage to say so?
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Other than perhaps Michael Meacher, Dennis Skinner or John McDonnell probably not.
I don’t disagree that SSE is a bad thing, created by Brown for his private equity chums such as Ronald Cohen to allow them to sell their UK holdings free of tax (and not to encourage investment because it applied to holdings created before the exemption), but Vodafone’s disposal is free of tax because of the Dutch Participation Exemption, not the UK SSE.
But it could have been the same here: it makes no difference
But it does mean your post is factually incorrect. Even if there were no SSE here in the UK, there would still be no UK tax to pay on the sale by Vodafone. Even if the Dutch Participation Exemption didn’t exist there would STILL be no UK tax to pay. People read and repeat what you write and at the moment you’re accusing Vodafone of avoiding UK tax on the deal, which they clearly aren’t.
I read on the BBC that there are up to 500,000 UK private investors who will receive dividends and presumably many of them will pay UK tax. Surely that’s a good thing.
I’m not saying Vodafone are getting round tax
I am saying the tax system should change. Politely, stop distorting the truth
And your last argument is naive – it ignores the billions that will go offshore untaxed
Agreed. I’m advising someone at the moment who is making decisions on his private company structure based on the availability of the SSE or if not available holding outside the group to take advantage of Entrepreneurs’ Relief. Wasn’t it Gordon Brown as well who around ’94 declared that his intention was to take tax out of the decision making process? In other words the tax outcome would be the same no matter how you structured it.
Maybe the new generation of politicians who are needed will ditch SSE.
Of course they would need to be 55 or over..!
🙂
The oft mooted rationale for a participation exemption regime is that it prevents double taxation – which to be fair it does achieve … and more . But the HMRC documents and RIA don’t really talk about that. They talked about ‘fairness’, making the UK competitive with other EU regimes, encouraging investment in the UK etc.
So it is quite clear that eliminating double taxation wasn’t the driver/thought process behind the SSE, it was to make life easier for MNC’s, and I suspect Alex you’re right ,about it being to help out the private equity sector.
Funnily enough I don’t recall it doing that because in the group I worked in at the time, we really couldn’t tell if we met all the conditions or not to qualify without undertaking a huge amount of work. And the only project that would justify the expense of that would be if we decided to look at joining the companies that were emigrating out of the UK at the time (or shortly thereafter since SSE made that decision suddenly possible) — Not really consistent with the stated driver of encouraging investment lol.
Ps — we didn’t do the emigration project — thank goodness — I didn’t really want to have to relocate to Dublin.
The discussion of SSE here is a red herring. As others have noted there is no CGT because of the Dutch participation exemption rather than SSE so there would be no UK CGT on this even without SSE. The thing which is of real benefit to Vodafone is the dividend exemption in CTA2009. That allows them to get the proceeds into the UK without suffering UK tax. I’ve not seen that point being raised in any article.
Even the Guardian is getting this wrong:
http://www.theguardian.com/business/2013/sep/02/vodafone-verizon-deal-tax-margaret-hodge
and they at least really should understand SSE.
SSE was not, as far as I know, ever in Gordon Brown’s manifesto.
Therefore, as Howard Reed correctly pointed out a day or so ago on another thread on this site, if it is not in the manifesto, it has no democratic legitimacy and therefore it is not a proper law.
Therefore, anyone who takes advantage of it is not ‘tax compliant’ but is a tax avoider and should be caught by GAAR.
I think that’s a step in logic that goes too far – parliament did approve it
“Therefore, as Howard Reed correctly pointed out a day or so ago on another thread on this site, if it is not in the manifesto, it has no democratic legitimacy and therefore it is not a proper law.”
That might be a slippery slope to go down – lots of things go through the HOCs that aren’t directly linked to a manifesto.
So on the basis that Parliament’s intention for these transactions is apparently _not_ to tax them, then taxing it, as a ‘result not intended by Parliament’ would actually be closer to avoidance than not taxing it? We’re right through the looking glass now…
I am arguing the law should be changed
I am not saying Vodafone as such avoided – although it is clear from the Dutch location of the holding it always intended to
It so happened the UK made that easier
I am now saying that the UK law should stop making it so easy
Why is that so hard to understand?