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United Kingdom: Vodafone 'Settles' HMRC Tax Dispute

21 August 2013   (0 Comments)
Posted by: Author: Robert Lee
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Author: Robert Lee

Telecoms company Vodafone struck a multimillion pound deal with the UK taxman to settle a dispute over an Irish subsidiary, it has been claimed.

According to the Guardian newspaper, Vodafone employed an Irish subsidiary, Ireland Marketing Ltd (VIML), to collect royalty payments from operating companies and joint ventures elsewhere. The subsidiary allegedly employed no staff between 2002 and 2007, but was able to report an annual turnover of EUR380m (USD506m) by the end of that period. It is further claimed that these royalty payments enabled Vodafone to distribute more than EUR1bn worth of dividends to Luxembourg, via Dublin.

The Guardian says that it has seen accounts filed in Ireland which show that HMRC and Vodafone came to an arrangement regarding the royalties in 2009. It is not known how much money the settlement ultimately involved, but Vodafone is thought to have reclaimed from the Irish Government taxes paid to the tune EUR67m. These are taxes, the paper claims, which ought to have been paid in the UK.

Vodafone has now issued a statement to Sky News, stressing that the royalty payments were made "under domestic and international transfer pricing rules."

The statement explains that the settlement "related to a number of technical factors regarding inter-group transfer pricing arrangements. Notably, throughout the period covered by the settlement, the profits of VIML had been taxed at the rate of 25 percent." It goes on to point out that, in accordance with the double tax agreement (DTA) between the UK and Ireland, "the Irish Government credited taxes previously paid by Vodafone and these were then paid to the UK Treasury as part of the overall settlement."

The successful conclusion of this dispute is in contrast to the ongoing one between Vodafone and the Indian Government. In 2012, the Indian Supreme Court decided that Vodafone was not liable for a USD2.2bn bill in back taxes and penalties in connection with its 2007 acquisition of Hutchison Essar, but retrospective changes to the Income Tax Act threw the ruling into doubt. The Indian Finance Ministry recently proposed conciliatory negotiations, but Vodafone continues to seek conciliation under the United Nations Commission on International Trade Law.

Perhaps in a nod to the Indian saga, the company's statement to Sky concludes: "Vodafone conducts itself in full compliance with the law and always operates under a policy of full transparency with the tax authorities in all countries in which we operate. Vodafone's relationship with tax authorities is based on complete disclosure and a rigorous adherence to due process at all times."


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