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According to the Private Eye, Vodafone’s dodging another £2 billion a year in tax with a complicated internal loan scheme. It was apparently cleared with the company’s other tax dodging plans in the controversial tax write-off by the HM Revenue and Customs 18 months ago.
It seems Vodafone’s using both Luxembourg and Swiss law to allow a the US Vodafone America Holdings Inc, which owns a 45 per cent chunk of Verizon Wireless in the US, to “borrow” money from a company called Vodafone Luxembourg 5 sarl. It wasn’t a small amount either — $27 billion in total. Vodafone Luxembourg 5 sarl, which had migrated to Jersey since the loan, now earns $2.5bn a year in interest on the loan, coming in at around £7.5bn by March 2011.
British anti-tax avoidance laws dictate that these profits should be taxed in the UK, which would have produced another tax bill in the region of £2bn — not a small amount when we’re teetering on the brink of another recession.
Private Eye is estimating that Vodafone’s combined dodgy dealings have cheated the UK taxpayer out of well over £6bn in tax. The whole thing is currently under investigation by the National Audit Office (NAO), which is why this latest scandal his risen its ugly head. It’ll be interesting to see what the NAO makes of all this, whether the original, and now this newly revealed tax dodge, are actually valid; even if they aren’t ethical
Whatever the law says, as a UK taxpayer, I reckon it’s totally off. In terms of big business, I’m certain dodgy things like this go on all the time. But considering the country could really do with £6bn odd in tax, I’m hoping the NAO finds Vodafone has to cough up – either that or it has to give everyone in the country a free phone. [Private Eye]
Image credit: Burglar from Shutterstock
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Given that 60B is about £100 each, it wouldn’t exactly be the sort of phone we want!
Bastards. Private Eye doesn’t get enough recognition for true investigative journalism like this.
I think £100 is a lot to anybody, but when you consider splitting it down the middle and redistributing wealth – it could be £200 per person for the lowest 50% of earners. Follow that with an average family in the UK of approximately 4, you’d be looking at £800 per family. That’s a lot of money for a single company to essentially steal from the taxpayer.
Vodaphone never owed £6Bn in tax, http://bit.ly/eoYyx8. Indeed HMRC settled the case outside of court because there was a chance they would of lost the case entirely.
Thanks for that. I’m all for outing companies that are avoiding tax – but reality needs to be kept in check too.
The biggest argument isn’t about the legality, rather the morality of it. They’ve obviously gone to a lot of effort to dodge huge sums of tax. And the legality of itself is dubious – no, HMRC couldn’t be sure that they’d win because of the extremely complicated tax laws and their interpretation, but there seems to be evidence of cosy relations between HMRC and big businesses: http://bbc.in/rVkOkY (I know that’s an opinion piece really, but it shows the concerns).
But the bigger picture isn’t just about the companies, but also the legal loopholes that allow these actions to happen – the government has made it quite obvious in the past that these loopholes are left open because they don’t want to scare companies away from the UK, but this is practically daylight robbery!
I wouldn’t really call what Vodaphone had done morally dubious, the general gist of what HMRC was calling Vodaphone on was not paying UK tax on the profits it had made in Germany, by selling phones to Germans after paying German tax. The CFC rules are mainly there to stop UK companies pilling up cash in other tax havens, and Vodaphone themselves had already put aside £2Bn in probable tax costs for the dividends they received into their subsidies and settled for £1.25Bn, which after looking at the taxes they have already paid to other countries is about correct taking total taxes paid near to the 30% Corp tax we have (I recall it was around 28-29%)
I also wouldn’t call what these companies doing robbery, they certainly haven’t taken anything from us by force, and by providing the goods and services we want at prices we are willing to pay.
In relation to the most recent allegations of tax avoidance, all they have done is loaned money from the swiss branch of Vodafone Luxembourg 5 sarl to Vodafone Holdings an American company. As the profits haven’t been realized by the main holdings company as the taxable profits were created by and then maintained in different sub companies no tax is really owed under EU law (Which is kind of what they argued last time with HMRC).
Do also bear in mind that when you get your facts from the Institute for Economic Affairs, (a right-wing, free-market loving think tank), you’re hardly likely to get a fair and balanced assessment of the situation.
As TrustyDuckling rightly says, the legalities of it are dubious, hence the Private Eye article – if it was complete nonsense, they would have been sued to high heaven (something I think Ian Hislop would quite like to avoid happening again!)
“Do also bear in mind that when you get your facts from the Institute for Economic Affairs, (a right-wing, free-market loving think tank), you’re hardly likely to get a fair and balanced assessment of the situation.”
That’s certainly playing the man rather than the ball…
To start talking about tax in “moral” terms is a ridiculously slipperly slope. Is it immoral for me to remunerate myself from my business through dividends rather than a high salary? How about people popping over to the continent to purchase some cheap alcohol? How many billions do you think HMRC loses out on as a result?
I have nothing against loopholes being closed, but I have no time for people who demand retroactive action against those who took advantage of them.
Don’t believe I mentioned anything about morality, I was simply remarking that it is murky territory as far as the legalities are concerned, and it’s far from as clear cut as either the folks at UK Uncut or the IEA would like it to be.
Sorry, the morality bit was in reference to some of the earlier comments.
From the IEA source that hdoodson posted:
“It [Court of Appeal] said that maybe the CFC rules and the EU rules can coexist but only if Vodafone’s activities were real corporate activity rather than just designed as a tax dodge.”
Compare this to Private Eye’s most recent article which describes the use of a secondary company with profits of around £7.5billion with a wage bill of just $8000 – it’s surely pretty obvious that these actions are not ‘real corporate activity’?
But on the issue of morality, why do you think that these loopholes should be closed if they are not immoral – surely the purpose of law is to enforce the moral values which form a society?
And in these more ‘petty’ cases, there are measures to prevent this – I hope that you declare your dividends on your tax forms, and you’re probably aware that there’s a limit on the amount of alcohol, cigarettes etc. that you’re allowed to bring from the continent for that very reason.
Also, I’d like to point out that I haven’t demanded retroactive action, and I don’t think that anybody else here has, but it is an issue that needs to be addressed and a situation that needs to be investigated to ensure we have a full understanding of what’s gone on.
I didn’t say that loopholes should be closed, simply that I don’t necessarily oppose their closure.
As for morality, my problem is that the argument appears to be drifting towards the view that depriving the government of tax revenue is in itself immoral.
Morality is a pretty crappy way to form a legal system, indeed partly why we have been moving away from it for some time (Legalisation of gay marriage in 2015, ignoring blasphemy laws etc etc). Most laws enacted today are in an effort to preserve personal freedoms or to restrict others to protect the rights of another party (Smoking ban, speed limit).
Well that’s ironic because yesterday I phoned Vodafone to see if they would price match a Three iPhone plan when the guy said that due to Three being a foreign based company they avoid certain tax and other fees meaning they can supply at a lower price …
Not really Irony, more like sales patter.
Ignoring the validity of this case, it’s incredible that pennies are being saved from the poor whilst the rich get away with truckloads of cash. Typical Tory government; incredible they got voted in.