Vodafone puts off cost of £2bn tax battle to 2009

Vodafone has said that
its difficulties over controlled foreign companies rules will not be resolved
until as late as 2009, a year later than it had initially indicated.

The company is fighting with HM Revenue & Customs over a Luxembourg
subsidiary that was used to handle the Mannesman transaction in a tax efficient

Vodafone has provisioned
for as much as £2bn over the impact of the case, defending itself by saying that
since CFC rules breach EU law, it does not even have to respond to
investigators’ requests for information.

Andy Halford, Vodafone
FD, said: ‘Because of clarity on the Cadbury case we will now wait and see how
that applies to our own circumstances. We think that will now take a little bit
longer to resolve than previously anticipated. So rather than maybe 2007/2008,
it may be 2008/2009 before we get that fully resolved.’

Cadbury is running a test case on the issue, on which the ECJ recently issued
a nuanced opinion narrowly in Cadbury’s favour.

Halford said the provisions on the CFC case would not change: ‘On the CFC
case, we have decided that we will hold the provision that we had at the end of
March and not increase it further. So the only extra cost we have actually had
is for the interest cost. That is the primary reason why we see the current year
situation on tax improving.’

Halford said of the group’s other tax issues: ‘On the other £3bn, we have
actually agreed some of those cases now and have booked those in the first half
of this year.’

Further reading:

Vodafone shares sink under
tax bill

Former E&Y chairman takes
on non-exec role at Vodafone

Asset write-down scuppers
Vodafone’s profits

Related reading