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Vodafone Publishes Tax Contribution Data

by Robert Lee,, London

30 December 2013

Vodafone has voluntarily released details of its tax affairs on a country-by-country basis.

The publication relates to the year ended March, 2013, and updates data first made public in June. It provides an overview of the telecoms group's total contribution to the public finances in each of its countries of operation, including direct and indirect cash taxes paid, as well as non-taxation based government revenue contributions.

In the 2012-13 financial year, Vodafone's global businesses paid more than GBP4.2bn (USD6.9bn) in direct taxes and over GBP3.2bn in other non-taxation related fees and levies. GBP6.1bn was contributed to national governments through indirect taxes.

Vodafone claims to be one of very few multinational corporations which make such voluntary disclosures. Its document contains a section on "understanding tax," which stresses that "in many countries and for many companies corporation tax payments only account for a small proportion of businesses' total tax contribution to national governments," because the levy is paid on profits, not revenues.

In Vodafone's case, "the cost of acquiring radio spectrum from the government, high operating costs, substantial levels of capital expenditure and sustained competitive and regulatory pressures, have a significantly negative effect on the profits" of its local businesses. The capital allowances offered in many countries also reduce tax liabilities, and Vodafone maintains that it does not enter into artificial arrangements designed to divert profits and therefore minimize its tax bills. It only adopts "business structures that reflect genuine and substantive commercial and operational activities."

Moreover, the company "always seek[s] to operate under a policy of full transparency" with the countries in which it operates. Vodafone discloses "all 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."

The document contains several "in focus" sections. In one of the most interesting, Vodafone accuses the Indian tax authorities of actions that have "led to a protracted legal dispute." Although India's Supreme Court ruled in the company's favour last year, the Government continues to pursue Vodafone for a USD2.2bn bill in back taxes and penalties relating to its 2007 acquisition of Hutchison Essar.

Recent changes to the tax law, designed to require taxes to be paid retrospectively, re-opened the controversy. According to Vodafone, the Government's "decision to rewrite half a century of tax legislation with immediate retrospective effect" badly damaged global business confidence. The company continues to maintain that no tax is due on the deal, although it has informed the Government that "as a committed long-term investor" in the country, it is "willing to explore the possibility of a mutually acceptable solution."

Going forward, Vodafone will "continue to have constructive discussions with the Indian Government regarding options for conciliation," but has "made it clear that any solution would need to be comprehensive in resolving the core of the dispute."

Vodafone has also come under fire for its UK tax affairs, and has been accused of paying little or no corporation tax there. Vodafone's defence against such allegations is based on the fact that its UK profit represents just "a small fraction" of its gross UK revenues. Its corporation tax position is ultimately "determined by UK capital allowances for UK investment and UK debt interest relief on borrowings from UK banks and financial institutions, set against a (relatively very low) level of UK profit," and its overseas financing subsidiaries "have no bearing" on its UK corporation tax position.

A number of Vodafone's subsidiaries are based in Luxembourg, described as "an attractive EU location for substantive business operations." More than 300 people are employed by the group in Luxembourg, and are charged with overseeing the "provision of financing to Vodafone's international businesses on a commercial 'arms length' basis." Although Luxembourg charges corporate tax at a standard rate of 29.22 percent, any write downs on the book value of a company's assets are recognized as tax losses. As such, they can be offset against company profits.

As a result, Vodafone's historical losses "more than offset" its income in Luxembourg.

Vodafone claims to have "no view on the merits of direct versus indirect taxation, nor on the distinction between the revenues that flow to governments from taxation versus those obtained through other means, such as spectrum fees."

As the document points out: "Governments – not companies – determine the rules."

TAGS: compliance | tax | investment | business | tax compliance | India | tax avoidance | tax incentives | interest | revenue guidance | law | corporation tax | Luxembourg | United Kingdom | fees | tax credits | tax authority | legislation | tax planning | tax rates | tax breaks | revenue statistics | penalties | telecoms

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