Vodafone loses UK tax avoidance case

Vodafone has said it will continue its battle with the taxman over a tax avoidance case worth an estimated £2.2bn after losing a ruling today in the Court of Appeal.

The ruling overturns a judgement in July last year over the payment of taxes on the mobile phone giant's Luxembourg subsidiary set up after its acquisition of Mannesman in 2000.

Vodafone argued that UK rules on the taxation of profits of foreign subsidiaries – Controlled Foreign Company rules – were incompatible with European Union law.

The Court of Appeal ruled that CFC rules apply to companies operating outside the European Economic Area and also to EEA companies without genuine economic activities.

UK CFC tax legislation is designed to stop UK companies avoiding tax by diverting income to subsidiaries in low-tax countries.

A Vodafone spokesman said it would appeal to the House of Lords against the decision.

Bill Dodwell, head of Deloitte’s tax policy group, said the judgment was 'common sense' but called for further clarification on the kind of economic activities that will be subject to CFC tax under the Court of Appeal ruling.

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Vodafone FD throws down CFC gauntlet