Cable & Wireless Moves To Cover Potential Tax Liability

by Jason Gorringe, Tax-News.com, London

13 January 2003

Telecommunications group, Cable & Wireless announced on Thursday that it will deposit £1.5 billion from its dwindling £2.2 billion cash reserves into an escrow account in order to cover its potential tax liability.

In early December, ratings agency, Moody's Investor Services cut the company's long-term rating from investment grade to junk status, triggering a clause in an agreement with Deutsche Telekom, to which C&W sold its half share of mobile phone company One2One in 1999.

Although Cable & Wireless refused at the time to comment on the exact terms of the deal - upon which they were advised by Andersen, Enron's former auditor - it is believed that that the British group avoided paying any tax on the £3.45 billion which it received from the disposal of One2One, but promised Deutsche Telekom that it would meet any tax liability which occurred as a result of the transaction.

Despite the fact that the telecoms group may have to wait several years to find out whether it has to pay the tax liability, it has been obliged to set up the account under the terms of its agreement with Deutsche Telekom. However, if the organisation's debt is rerated to investment grade, or it manages to secure a bank guarantee for the amount in question, Cable & Wireless has the right to terminate the account and retrieve the cash.

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