Cable & Wireless Settles £1.5 Billion Tax Liability

by Robin Pilgrim, LawAndTax-News.com, London

27 March 2003

Telecommunications group, Cable & Wireless announced this week that it has settled a disputed tax liability with the UK's Inland Revenue, and will hand over £380 million to cover unspecified tax issues dating back over a decade.

This has allowed it to free up the £1.5 billion which it was forced to ringfence last year when its credit rating was downgraded.

The liability arose in October 1999, when C&W sold its 50% stake in T-Mobile (then One2One) to Deutsche Telekom, and pledged to cover any tax liabilities incurred by the German company as a result of the deal.

Following a downgrade of the telecoms provider's credit rating to junk status, Cable and Wireless was obliged to stand by its earlier promise and place £1.5 billion in an escrow account, a move which shocked investors, who had not been informed of the tax deal.

Speaking on Tuesday, C&W Chairman Richard Lapthorne, who joined the company in January explained that:

'Establishing clarity over the Group's tax position was an essential element in our planning for the future financial shape of the Group. With the settlement in place and consequent anticipated release of funds under escrow we now expect to have a firm financial base for securing the future of the Company.'

Observers have suggested that the newly released money could be used to fund a restructuring of the group's ailing internet operation, C&W Global.

However, the telecommunications giant is not necessarily out of the woods quite yet, as according to reports in the UK media this week, it is still facing lawsuits from investors angered by its concealment of the 1999 tax agreement with Deutsche Telekom.

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