Vodafone’s £2bn tax decision weeks away

Vodafone will find out in the next few weeks whether it must go to Europe to
challenge UK-controlled foreign companies rules, in one of the largest tax cases
to come before the courts.

The company has been involved in a £2bn dispute with the government over a
Luxembourg subsidiary.

A judgment in the case, which is considering whether or not a reference to
the European Court of Justice should be maintained or dropped, is understood to
have been sent to the parties in the case as a draft, indicating that
publication could be only days away.

The dispute is the latest salvo in a high-profile and now long-running
dispute. Court papers indicate that HM Revenue & Customs had challenged the
company on a Luxembourg subsidiary associated with the fallout of the £100bn
Mannesman takeover, completed in 2000.

HMRC is saying the subsidiary is a controlled foreign company, and as such
its income should be taxed as part of the UK group.

Vodafone has in turn tried to bat off the enquiry by saying that the CFC
rules are incompatible with EU rules on freedom of establishment and movement of

A separate case brought by Cadbury Schweppes has already ruled in the
taxpayers’ favour on that point before the ECJ, and the latest case is thought
to concern whether or not a separate reference to the ECJ for the Vodafone case
should go ahead or be withdrawn.

The company revealed in its annual report in June that the case had been
heard before the special commissioners in March, and also that it had won on a
separate point, over the residency status of the Luxembourg subsidiary, Vodafone
Investments Luxembourg.

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