Vodafone in £2bn tax battle

Vodafone is battling with HM Revenue & Customs over a £2bn liability, in
what may be one of the largest tax cases ever fought in the UK.

Details of the case emerged today as Vodafone’s interim results were
announced.

The case is part of the massive group litigation orders brought by
multinationals over the legality of UK tax law within the European framework,
themselves worth tens of billions in total.

But whilst other GLOs challenge individual aspects of the rules, the Vodafone
claim goes further in effectively challenging the Revenue’s right to ask
questions about foreign subsidiaries, or controlled foreign companies as they
are known in UK tax rules.

Court documents reveal that Vodafone is to argue ‘that since the imposition
of UK tax in respect of profits of subsidiaries in other Member States of the EU
contravened Articles 43 and 56EC, there could be no valid requirement to produce
documents or provide information in relation to any part of the enquiry that
relates to compliance with the CFC legislation.’

The Revenue had asked for more information on a Vodafone subsidiary in
Luxembourg, Vodafone Investments Luxembourg Sarl (VIL Sarl).

Vodafone had disposed of shares in Mannesman, the German mobile phone company
it took over in the late 1990s in one of the largest M&A deals in corporate
history, into VIL Sarl.

Vodafone’s annual report and accounts disclosed earlier this year that the
case was thought to be worth £1.7bn.

CFC rules are designed to prevent companies channeling funds offshore to
avoid tax, and any successful challenge to HMRC’s ability to ask questions about
them would drive a hole through the Revenue’s anti-avoidance programme.

HMRC has tried to delay the case by forcing it through the UK courts. It is
set to be heard shortly by the European Court of Justice.