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Vodafone Wins Huge Tax Windfall
(09 Jul 2008, BWCS Staff)In the kind of settlement most of us can only dream of, UK mobile giant Vodafone has won a landmark tax case against Her Majesty's Customs and Excise worth around £2 billion (US$4.4 billion). The move comes after a nifty relocation of the part of global operator's operations to a new country - the Duchy of Luxembourg. Officials in the tiny state have generously issued Vodafone with a certificate of tax residency that confirms Vodafone Investments Luxembourg Sarl (VIL) is resident for tax purposes there.
With the certificate in hand, the operator has managed to successfully defend itself against claims from the British government that VIL's profits should be subject to corporation tax in the UK. The government attempted to use the Controlled Foreign Companies legislation, which was introduced back in 1988, in an attempt to avoid just this scenario.
However, the presiding judge in the case has ruled that it is illegal to impose UK corporation tax rates on a Vodafone subsidiary in Luxembourg, where taxes are lower. The subsidiary was formed by the acquisition of German company Mannesmann in March 2000. In 2006, the European Court of Justice ruled that the CFC rules were restrictive, and could only be justified when the subsidiaries were set up artificially to try and gain a tax advantage.
Never willing to let go of a bone, especially such a large one, Her Majesty's Customs and Excise officers have promised to appeal the decision, saying that the Government will continue to defend its ability to enforce the CFC rules, which are designed to counter tax avoidance through artificial shifting of profits to offshore subsidiaries.
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