BusinessCorporate FinanceVodafone is prepared for long war on CFC legislation

Vodafone is prepared for long war on CFC legislation

Vodafone’s long-standing battle with the taxman over its Mannesman tax arrangements is set to drag on, the company has warned

Releasing its final results this week, Vodafone has said it ‘does not expect
resolution of the application of the UK controlled foreign company legislation
to the group in the near term.’

Vodafone
said in last year’s annual report that the tax at stake was £1.7bn, with as much
as £400m in interest costs on top of that, making it one of the largest
corporate tax disputes of recent times.

The group has held firm on its provisioning for the charges but has said that
it has not added to it as the case drags on.

The case is being followed closely by FDs, not least because it may
eventually provide some insight into the tax treatment of controlled foreign
companies, currently causing friction between the UK government and
multi-nationals.

Two companies, Shire and United Business Media, have already pledged to leave
the UK over a threatened tightening of UK rules.

Vodafone’s tax affairs have also proved some of the most complex of any
company’s in recent years, with a series of issues in different jurisdictions.

It has been involved in a case in India and was also a party to the failed
attempt by mobile phone companies to reclaim VAT on the cost of their third
generation mobile phone licences.

The interest alone on Vodafone’s tax provision stands at £1.6bn, it said this
week. The provision has risen by £399m since 2007. Its final results also
disclosed that its free cash flow included £700m in payments in respect of
longstanding tax issues.

In a recent interview, Vodafone’s group head of tax Joel Walters commented on
the large sums involved in tax disputes.

‘That creates an illusion that there are significant numbers of issues,’ he
said. ‘I’m concerned that once this perception begins to permeate the taxing
agency what tends to happen is that the focus comes on enforcing the tax loss,’
he said.

A Vodafone spokeswoman said: ‘We don’t believe we are liable [for CFC tax
charges] in respect of our Vodafone Luxembourg subsidiary.’

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