After a week of confrontation between Vodaphone and the Treasury, light has been shone on the international tax planning of a major corporation, but no overt progress has been made towards lessening the damage that the UK's Finance Bill 2000 will do to British international competitiveness.
It's now clear that Vodaphone's quarrel with the Government, spurred by the circumstances of the mobile licence auction, had more to do with Controlled Foreign Corporation tax avoidance legislation than with 'mixer' corporation tax minimisation.
The company's purchase of Mannesman was made direct, without the interposition of a low-tax holding company, either due to the need for speed, or due to German m & a legislation, or some such reason; but the moment the company's tax specialists got their hands on it, they made plans to put in an intermediate holding company, probably in Dublin's IFSC, which would have allowed most of Mannesman's profits to be set off against the interest expense of loans taken out to buy it, thus reducing profits in the highest tax country involved (Germany), effectively transferring them to Ireland, where a tax rate of 10% (going up to 12.5%) is possible. Complex debt structures would then ensure that as little of the original profit as possible ever enters the UK, with some use of 'mixers' into the bargain.
The Finance Bill's tightening up of the CFC regime, along with the 'mixer' company rules, threatens this type of manoeuvre, or at least makes it far more complex and less profitable.
But who will say whether that this is tax evasion, tax avoidance or tax mitigation?
The disastrous combination of Socialist Ministers and mean-minded Treasury bureaucrats knows full well that it is somehow 'stealing' from the people. Oh, dear, will they never learn? Has no-one at the Treasury heard the saying that 'tax is theft'?
Never mind ethics: the gritty reality is that most of the UK's industrial competitors have more lenient corporate tax regimes, and that the difference in actual corporation tax rates that was one of the achievements of the 1980's has been whittled away, until the tax advantages of the UK are so marginal that this final twist of the screw is enough to tip companies into moving, or at least, into deciding not to come to the UK.
Is that what they want, at the Treasury, as they count the $25bn paid by telecoms companies to supply mobile services to Britain's booming economy - a payment which was today called 'an immoral tax on the future of British citizens' by a respected US academic? Even the Financial Times, whose politics in recent years have been as pink as the paper they are written on, came out against the Treasury in a leader yesterday.
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