Now Vodafone comes under the tax spotlight (again)

One of the pleasures of the Christmas break is to sit back and have the time to enjoy the festive edition of Private Eye – featuring the best investigative reporting you’ll find anywhere. It was the Eye that brought the tax ‘mitigation’ schemes of several well-known corporate giants (Starbucks, Google, Amazon, etc etc) to the attention of the general public, usually when the rest of the national press picked up on their stories. Even the head of the UK government’s Public Accounts Committee, Margaret Hodge MP, credited the paper when she said recently: “The time has come to stop relying on Private Eye to tell us when things go wrong.”

So it is disappointing to learn that mobile giant Vodafone is now coming in for some harsh criticism. We expect the US-based Google to be “creative” with its tax affairs, but the UK’s very own Vodafone? Shome mishtake shurely, as they say in the Eye?

According to Private Eye’s reports, Vodafone is using operations in Luxembourg to mitigate its taxes. In fiscal 2011 and 2012, ‘Vodafone Investments Luxembourg’ and ‘Vodafone Luxembourg 5’ reported interest receipts from other Vodafone operations of €1bn and $2.4bn respectively “with next to no costs, all taxed at somewhere less than 0.03 per cent”. (yes, there’s a euro and a dollar sign there, which doesn’t quite look right as you would expect both to be euros…, but we get the general picture).

The Eye says this all stems from an earlier dispute between Vodafone and the UK’s Revenue and Customs (aka the tax men). There’s plenty of background material on this in TelecomTV’s archives, for example here and here. There’s also a video report here from March 2012, investigating Vodafone’s tax affairs in Luxembourg and Switzerland, which attracted this statement of denial from Vodafone.

The UK government tried to get this money taxed, but Vodafone argued that the UK’s laws here were at odds with European law. The messy and costly dispute was settled in 2010 when Vodafone paid up £1.5bn, with the controversial agreement that Vodafone’s future Luxembourg-based profits would be untaxed. According to Private Eye, this equates to the UK treasury missing out on £500m of taxes from Vodafone this year alone.

Back to the UK Public Accounts Committee, and just over a year ago one of its members, Stephen Barclay MP, claimed that Vodafone should have paid an amount even higher than the £6 billion it was rumoured (denied of course) to owe:

“We are looking at potentially £8 billion of tax lost and we are looking at a company that was given five years to pay even though it was sitting on huge pile of cash.”

Here’s what Vodafone’s finance director, Andy Halford, was reported as saying at the time of the settlement:

“[the deal] preserves the very significant benefits of our efficient group tax structure, which we have benefited from for many years.”

As always, there is no suggestion that Vodafone or any of the other companies mentioned are operating in any manner that’s not legal. That’s not the case. What is the case is that they may well be operating in a manner that is unethical and increasingly unacceptable to their customers (i.e., you and I), who don’t have the opportunity, means, skills or even desire to take massive steps to somehow reduce their own personal tax contributions.

Many of the shareholders of these firms may see nothing wrong in their actions (you just have to read some of the comments to our earlier coverage of this developing story to see how passionate some people feel about this), as they regard it as good corporate responsibility to minimise costs and maximise profits – although most of these companies are extremely loathe to actually hand out dividend payments… Fair enough, we are all entitled to our personal opinions – those of us who are lucky to live in democracies, that is. Yet others see this action as morally wrong – without taxes, there can be no public services, and do we really want to live in a society where absolutely everything is financed and run by the private sector? Time to read ‘Snow Crash’, if you haven’t done so already.

Whatever your personal view on this, it is important to consider what the members of the public think and how they will react. My view and your view are unimportant – it’s the public’s view that counts. Will they boycott companies that blatantly take extreme measures to minimise corporation tax payments? Will the public see this as a clear-cut argument – if you make money in a country, then you pay local taxes in that country? If so, will they decide to change service providers, preferring to give their business to a company that actually contributes to their country’s taxes? If they can, of course. Where is the competition to Amazon? Even Google has far less competition than Vodafone or any other mobile operator. Or will the public just shrug its collective shoulders and accept this as the way all businesses should behave, and carry on as normal?

The outcome remains uncertain, but it would be wise not to under-estimate the general public. History is full of stories of those that did just that, and then came to regret it.

So will 2013 be the year that consumers exercise their buying decisions with higher regard to “ethical” corporate behaviour – choosing vendors that conform to their own notions of “good and fair”? And if a sufficient number do so, how will these vendors react?

As I have already said, my view and your view are unimportant – it’s the public’s view that counts. Because if the public doesn’t care, and accepts that "only the little people pay taxes", then it gives a clear green light for all companies to adopt similar tax mitigation strategies.

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