Vodafone Claiming EUR20 Billion Tax Credit From German Authorities

by Ulrika Lomas, Tax-News.com, Brussels

10 June 2004

The acquisition of German engineering and telecoms group Mannesmann in 2000 by world’s largest mobile telecommunications firm Vodafone has once again caused political controversy as the firm attempts to claim a 20 billion euro tax credit from the German authorities in respect of asset write-downs.

It has been widely reported that the UK-based firm is claiming the tax credit under a section of the German tax law which allows companies to offset losses if it can be shown that the value of an acquisition has dropped since the completion of a deal.

Vodafone first acquired Mannesmann in a record-breaking 150 billion euro takeover in April 2000. However, when the German firm was revalued as part of a domination agreement which would give Vodafone unhindered control of Mannesmann’s financial dealings, it was concluded that as the firm’s share price had fallen, its value had dropped to 100 billion euros.

Stemming from this, it has emerged that Vodafone is currently negotiating with the state of Nord-Rhine Westphalia for a tax credit based on the difference between these two values, and the rules state that the firm may be entitled to 40% of this difference, or 20 billion euros.

The state authorities are said to be disputing Vodafone’s claim, and the issue comes at a difficult time for Gerhard Schroeder’s government as it attempts to shore up depleting tax revenues and secure the state’s political support.

A statement by the Finance Ministry ruled out the possibility of a change in the law to scupper Vodafone’s claim, although it stressed that “mere share prices swings are not sufficient” for the legislation to apply.

"Whether a drop in value is indeed permanent can only be decided after assessing the circumstances surrounding each specific case," added the ministry.

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