Vodafone paid zero UK tax last year
British government ministers and officials have been lecturing India about its move to force telecoms giant Vodafone to pay back-dated tax on its 2007 acquisition of Hutchinson’s Indian mobile phone assets. Now it turns out Vodafone avoided paying a single penny in taxes in the UK last year in an alleged deal with the UK tax department.
Vodafone saw its global corporation tax bill go up by £300m to £2.3bn last year, but none of it was paid in the UK, where Vodafone has more than 19m customers. According to The Sunday Times, the company’s British corporation tax bill fell to zero from £140m in 2010-2011, despite an increase in underlying earnings from £1.2bn to £1.3bn.
Britain is Vodafone’s home country – the reason Osborne met Pranab Mukherjee earlier this year to press his case about India’s retrospective measure. Yet the company avoided paying a single penny in taxes – a case of ‘aggressive avoidance’ if ever there was one – through what the paper described as a “series of accounting manoeuvres.”
“Vodafone reduces its taxable income in Britain by funneling loans through a subsidiary in Luxembourg. Interest payments on the loans cut its taxable profits in Britain, and allow it to benefit from lower rates in Luxembourg,” the paper reported. Indeed, it was able to reclaim £4million from the UK tax department.
Servicing debt reduces the amount of profit on which a company is taxed. In the case of Vodafone’s main British entity, it appears that the majority of debt is to other companies owned by Vodafone, creating a web of intra-company loans, The Times reported on Monday.
Vodafone is no stranger to tax controversies in the UK. It became the target of a campaign by anti-austerity campaigners UK Uncut after avoiding paying billions of pounds in taxes owed from its 2000 takeover the German telecoms firm Mannesmann. Instead of the £2.2 billion originally earmarked, in July 2010 the company hammered out a deal with the tax department that allowed it to pay £1.25 billion.
According to the Sunday Times, the 2010 deal has generated a £791 million “deferred tax asset” at an offshoot in Luxembourg which the company can use to cut its liabilities in the UK over the coming years. A note in Vodafone’s annual report says that £791 million of a “deferred tax asset has been recognised as a result of the agreement being reached with the UK tax authorities.”
Of course, everything that Vodafone has done is within the law, but the revelations are certain to renew criticism of Vodafone and fuel a larger debate around the tax avoidance by large businesses at a time of massive spending cuts. Lord Matthew Oakeshott, a former Liberal Democrat treasury spokesman, said, “Hard-pressed taxpayers and customers alike won’t believe Vodafone has managed to pay not a penny in corporation tax on profits of hundreds of millions of pounds.”
The tax department’s “cosy relationship with big business is again in the spotlight as companies continue to avoid billions in tax at a time of unprecedented public spending cuts,” UK Uncut said on Monday while condemning Vodafone. “While Vodafone paid no tax, its chief executive, Vittorio Colao, more than doubled his pay last year – from £6.6m to over £14m – including more than £12m in bonuses,” said a spokesperson for the group.
Vodafone said its corporation tax liabilities in the UK were offset by investment in improving its network, increasing from £516million to £575million over the year. It said its UK business accounts for less than 4% of group profits. “As in most countries, there are tax reliefs for capital investment and interest costs in the UK, which applied in this case,” a spokesman said. “We paid £14 billion into the public purse worldwide in 2011 if one includes payroll and sales taxes as well as fees for radio spectrum.”
In UK, the current coalition government’s approach to taxing profits by multinational giants contrasts sharply with that of the previous Labour government, which introduced laws to allow the taxman to pursue British profits transferred to tax havens. A British court upheld the measures, saying they did not contravene European law.
Angered by the 2010 tax settlement, campaigners have previously forced Vodafone stores across the country to close by blockading and picketing entrances. Later this week, UK Uncut will go to the high court seeking a judicial review of the tax department’s decision in 2010 to let Goldman Sachs avoid a £10 million payment.