Q&A Dominic Coyle
Counting the cost of Vodafone investment
Maybe you might give us long suffering shareholders a little advice on filling up the Vodafone-Verizon form(s). The Vodafone circular is very complex, so much so that the “expert” people who wrote it state that it is very complex!
Saying that is complex is an understatement, so how on earth is an “ordinary” person supposed to understand the language and figures used in the hefty circular. They say, any queries a shareholder may have should be directed at their tax advisors!
Anyway, perhaps you might help us out with a little plain advice on whether a shareholder with a mere 1,000 Vodafone shares since the Eircom ( Year 2000) days would be subject to Capital Gains Tax.
Most of us lost heavily so I would assume no tax
Mr S.H., email
It’s a salutary reflection that, after all these years, those who bought into the State flotation of Eircom in 1999 are still in the red.
The all-share acquisition of Eircell by Vodafone left the original Telecom Éireann shareholders with stock in Vodafone which have consistently underperformed.
So what now as those shareholders receive some cash and shares in yet another company – US telco Verizon – in a return to shareholders by Vodafone following the sale by the company of its US business to its partner in that enterprise, Verizon.
The first thing to bear in mind is that we will not know the precise position until the deal is confirmed – the value of the deal will depend on the share price of Verizon on that day as well as the foreign exchange rate from dollars to euro. But if you follow the process outlined ahead you will be able to determine your position.
Working out the maths, the starting point is the €3.90 that you originally paid for your Eircom shareholding. When Eircell, the original mobile business of the then Telecom Éireann was sold to Vodafone in 2001 and Sir Anthony O’Reilly’s Valentia consortium later that year took the rump of the company private – paying shareholders €1.335, excluding a dividend payment – Revenue stepped in to determine the how much of the original €3.90 purchase cost was accounted for by each side of the business.
It decided that €1.69 related to the fixed line business taken private by Valentia. That meant shareholders were out of pocket by 35.5 cent on each Telecom share simply on the basis of that deal.
The Eircell side of the operation was deemed to be worth €2.20.
To complicate matters, the Eircell deal did not deliver an easily calculable translation into Vodafone stock. For every two Eircell shares, shareholders received 0.9478 of a Vodafone share.
As you can imagine, that was asking for trouble in assessing any tax liability – especially given the number of “novice” investors involved in the Telecom flotation. Revenue, unsurprisingly, decided to set an “acquisition price” for the Vodafone shares of €4.66 per Vodafone share.
Most holders of stock originally acquired the shares in the flotation, which means indexation of the original purchase price to allow for inflation applies – at least to the end of 2022 when then minister for finance Charlie McCreevy abolished it.
Essentially, it applies a multiple to the original price, lowering any subsequent capital gain. Allowing for indexation, the Eircell holding would, as of now, be working off a base cost of almost €2.64. This would make the “base cost” of Vodafone shares €5.27.