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Saturday, 30 October 2010

BBC should put some of its reporters on hold

You would have though that with a budget of £3 billion or so, the BBC  would have been able to put together a more professional report on the pcketing of Vodafone shops than the student journalism on display on their website.

The simple facts are that Vodafone and HMRC won and fought a case through hte Revenue Commissioners, High Court and Appeal Court, plus a trip to the ECJ with each side winning and losing points on the way, but in the end both sides agreed to settle on a liability of £1 billion or so.

The story had been covered in Private Eye mentioning a liability of £6 billion, which is easily seen to be implausible with a bit of simple maths but is taken as gospel by a bunch of ignorant protesters, encouraged by the usual left wing suspects. An HMRC spokesman has said: "We can't comment on the details of the settlement but we can confirm that it was reached by HMRC following a rigorous examination of the facts. It was agreed that Vodafone's liability was £1.25bn and at no point was the liability greater than that", so it is very unprofessional of the BBC to give this story any prominence.  If HMRC say the figure at issue was never more than the amount Vodafone paid the protesters are not credible.

Amongst the poor reporting was the following claim that the issue "purportedly stems from Vodafone's purchase of the German telecoms firm Mannesmann, which was supposedly bought through a Luxembourg subsidiary to avoid paying tax in Britain."

Well no it doesn't.  If the German comapny had simply been bout by a Luxembourg holding company then there would be no tax payable in Britain if the profits remained in the foreign subsidiaries.  The issue was that the Luxembvourg subsidiary provided loans to the German and other subsidiaries which HMRC claimed provided low taxed passive income to the Luxembourg subsidiary which should be allocated to the parent under the UK controlled foreign corporation rules and which Vodafone claimed was a bona fide active part of its business and protected from those rules by the EU directives providing for freedom of establishment in the EU and non-discrimnatory taxation.

When Vodafone firsbought Mannesman they asked the Revenue whether there proposed arrangements wouldcauise the CFC rules to be disapplied.  The Revenue as is usually the case decided not to play ball, but as they usually do, told the company to do what they intended to do and file a tax return, which is what they did. After severalyears and a lot of haggling HMRC, the courts and Vodafone have basically determined what level of substance is required for the Vodafone treasury operations in Luxembourgf, which is why Vodafone now have an agreement that establishes that they won't be liable for any UK tax on their Luxembourg and other EU operations under the current UK laws, at least until they bring that income back to the UK. And quite right too.

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