Vodafone Fighting GBP2 Billion Tax Claim

by Robert Lee, Tax-News.com, London

18 November 2005

UK mobile phone operator Vodafone is currently in conflict with HM Customs and Revenue over a GBP2 billion tax liability, and the dispute is shaping up to be one of the largest tax cases in British history.

The case has its origins in Vodafone's controversial takeover of the German telecommunications group Mannesman and a record breaking corporate acquisition which took place in 2000.

Vodafone disposed of its shares in Manneseman through its Luxembourg subsidiary, Vodafone Investments Luxembourg Sarl (VIL Sarl), and the company is now challenging the Revenue's right ask questions about foreign subsidiaries, or controlled foreign companies (CFCs) as they are known in the UK.

According to Accountancy Age, court documents reveal that Vodafone is to argue "that since the imposition of UK tax in respect of profits of subsidiaries in other Member States of the EU contravened Articles 43 and 56EC, there could be no valid requirement to produce documents or provide information in relation to any part of the enquiry that relates to compliance with the CFC legislation".

The disputed payout, which has been referred to the European Court of Justice, is part of a total GBP5 billion that the group gave warning it may have to pay in tax over the next three years.

The tax dispute, which emerged as Vodafone announced its interim results, was not well received by investors, and the group's shares fell more than 15p earlier this week.

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