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Vodafone Defends International Tax Practices

by Robert Lee,, London

13 June 2013

Vodafone has for the first time published a detailed country-by-country overview of its tax affairs, stressing its commitment "to acting with integrity in all tax matters."

According to its Sustainability Report 2012/13, Vodafone paid more than GBP3.3bn (USD5.1bn) in direct taxes to governments in its countries of operation during the 2011/12 financial year. This figure encompasses payments for, among others, corporation tax, business rates (or their equivalent), employers' national insurance contributions, sector-specific taxes, stamp duties, irrecoverable value added-tax (VAT), and customs duties.

On top of this, Vodafone's businesses made a total indirect tax contribution to national governments of more than GBP5.9bn. Indirect taxes include pay as you earn (PAYE) income tax, employees' national insurance contributions, sales and consumption taxes, VAT and withholding taxes. A further GBP6bn has been invested in the networks and services used by customers.

The report provides a breakdown of the annual actual cash paid in direct tax contributions for each local market. The information has been presented in this way because Vodafone believes that "these are among the most meaningful and transparent metrics to consider when assessing a company's tangible role in helping to fund public services."

In the North and Central European region, Vodafone made direct tax contributions worth just over GBP1bn, and paid GBP2.37bn in indirect taxes. In Ireland, direct tax contributions reached GBP22m, and in the UK amounted to GBP338m. Direct tax contributions totaled GBP1bn in the South Europe area, and indirect tax contributions to GBP2.05bn. In the African, Middle East and Asia Pacific region, GBP969m was paid out in direct taxes, and GBP1.45bn in indirect taxes.

A more detailed examination of Vodafone's Indian tax practices is given in the report. The company has been locked in a dispute with the Indian Government over the tax liabilities allegedly arising from its acquisition of Hutchison Essar. In this context, the report is especially critical of the decision to make retrospective changes to the country's tax laws. The Government's "decision to rewrite half a century of tax legislation," as the report describes it, "greatly damaged global business confidence in the Indian Government and led to a marked reduction in the flow of investment into the country."

The report reiterates Vodafone's position that there is no tax due on the 2007 acquisition, but does make clear the company's willingness to "explore the possibility of a mutually acceptable solution."

Alongside the figures is a lengthy explanation of the manner in which they should be interpreted. In this, Vodafone wants observers to take into account the fact that corporation tax is payable in profits, rather than revenues, and that, in many jurisdictions, "corporation tax payments only account for a small proportion of businesses' total tax contribution to national governments." The local element of taxation is emphasised, as is the role large companies play in investment and employment. Finally, Vodafone believes that it is essential that the non-tax related revenue raising mechanisms used by governments should be taken into account "when assessing the extent to which a company is playing its part in funding wider civil society."

The report further states that Vodafone "always seek[s] to operate under a policy of full transparency with the tax authorities in which we operate, disclosing all the relevant facts in full, while seeking to build open and honest relationships in our day-to-day interactions with those authorities, in line with our Tax Code of Conduct." In forming its "assessment of the taxes due for each of our businesses around the world," Vodafone has two objectives. These are: "to protect value for our shareholders, in line with our broader fiduciary duties; and to comply fully with all relevant legal and regulatory obligations, in line with our stakeholders' expectations."

In sum, Vodafone claims its "overarching approach is to pursue clarity and predictability on all tax matters wherever feasible."

TAGS: compliance | Asia Pacific | tax | business | value added tax (VAT) | tax compliance | India | Ireland | law | insurance | employees | corporation tax | United Kingdom | legislation | tax planning | tax rates | withholding tax | stamp duty | revenue statistics | telecoms | European Union (EU) | services | Europe

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