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Will The Treasury Quail At Mighty Vodaphone's Wrath?

Jason Gorringe, Tax-news.com, London

31 May 2000

After Vodaphone's Chris Gent confirmed the company's threat to move overseas, the UK Government yesterday said that its plans to clamp down on the use of 'mixer' companies could still be discussed.

'The door is always open', said a Government spokesman.

In fact, Vodaphone is in a very special position, by comparison with other large UK companies, who prefer to continue the tortuous process of negotiation with the Inland Revenue and the Treasury in private, and see little benefit to be gained from a stand-up fight.

Vodaphone is the UK's largest company, with a market capitalisation around £190bn, and has very large international profit flows. Recent deals, including the acquisition of Mannesman, will have created multiple tax planning opportunities as well as exposure to massive tax liabilities, and the budget move against 'mixers', coming right in the middle of the Mannesman acquisition process, may well have threatened the cash-flow assumptions in Vodaphone's long-term planning.

Then of course came the mobile spectrum auction, and the Government's chicanery, as Vodaphone would see it, in holding back damaging announcements until the auction was completed.

Seen from Vodaphone's perspective, it would not be difficult to think that the Government had cost it several billion pounds. So it's understandable that company is annoyed. Vodaphone confirmed yesterday that it was considering moving its base overseas to avoid the impact of the company tax rules announced in the last Budget. Chris Gent, Vodafone's chief executive, said the company expected to resolve the dispute, but that it would consider moving "if all else fails".

Although the Treasury gave in to industry's complaints two weeks ago by postponing the application of the new 'mixer' rules for nine months, the wording is still in the Finance Bill, and there has been no sign until yesterday that the Government means to modify it to any great extent. It's not clear, therefore, what Vodaphone would be able to get in the way of concessions.

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