Vodafone ruling prolongs CFC confusion

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An ongoing tax dispute between
and HM Revenue &
has done little to clarify the tax rules for companies operating
outside the UK, after the Court of Appeal last week overturned an earlier
decision by the High Court.

The Court of Appeal ruled against the mobile phone giant which argued that UK
rules on the taxation of profits of foreign subsidiaries ­ controlled foreign
companies ­ was incompatible with European Union law.

Vodafone provisioned £2.2bn in its 2008 accounts in the event that it has to
pay up.

The dispute centers on the payment of taxes on the company’s Luxembourg
subsidiary where Vodafone registered Mannesman, the German mobile giant it
acquired in 2000.

The case has also highlighted discrepancies in the application of
cross-border CFC rules.

A spokesman for Vodafone confirmed that the company will be appealing to the
House of Lords on the basis that it has been conducting ‘genuine economic
activity’ in its Luxembourg subsidiary.

‘It’s flip-flopping from the High Court’s decision of last July,’ he said.

According to Bill Dodwell, head of tax policy at Deloitte, there is currently
no precedent on such cases as similar disputes are yet to be litigated.

‘We’ve had no court of judgment on what genuine economic activity is, which
is why we’re all struggling. It’s the big unanswered question,’ he said.

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