Vodafone is prepared for long war on CFC legislation
May, 31st 2008
Releasing its final results this week, Vodafone has said it does not expect resolution of the application of the UK controlled foreign company legislation to the group in the near term.
Vodafone said in last years annual report that the tax at stake was 1.7bn, with as much as 400m in interest costs on top of that, making it one of the largest corporate tax disputes of recent times.
The group has held firm on its provisioning for the charges but has said that it has not added to it as the case drags on.
The case is being followed closely by FDs, not least because it may eventually provide some insight into the tax treatment of controlled foreign companies, currently causing friction between the UK government and multi-nationals.
Two companies, Shire and United Business Media, have already pledged to leave the UK over a threatened tightening of UK rules.
Vodafones tax affairs have also proved some of the most complex of any companys in recent years, with a series of issues in different jurisdictions.
It has been involved in a case in India and was also a party to the failed attempt by mobile phone companies to reclaim VAT on the cost of their third generation mobile phone licences.
The interest alone on Vodafones tax provision stands at 1.6bn, it said this week. The provision has risen by 399m since 2007. Its final results also disclosed that its free cash flow included 700m in payments in respect of longstanding tax issues.
In a recent interview, Vodafones group head of tax Joel Walters commented on the large sums involved in tax disputes.
That creates an illusion that there are significant numbers of issues, he said. Im concerned that once this perception begins to permeate the taxing agency what tends to happen is that the focus comes on enforcing the tax loss, he said.
A Vodafone spokeswoman said: We dont believe we are liable [for CFC tax charges] in respect of our Vodafone Luxembourg subsidiary.