Vodafone payout is no ‘windfall’, just a payment to ease the suffering

Q&A Dominic Coyle

Tue, Feb 4, 2014, 01:30

You keep using the word “windfall”. You might be good enough to clarify to readers how this is classed as a windfall.

I have about 460 of these Vodafone shares. I am going to get rid of the lot of them, pay the tax be left with a couple of hundred euros. What is the point in holding on to such a small shareholding that will probably never be worth anything ? Am I missing something here?

Mr JG, Limerick


Good point. I have been careful the first time I mention “windfall” in any piece to put it into quote marks, like you. The reason? In general, a “windfall” is a payment free of tax, generally unexpected or unplanned for.

Of course, the Vodafone payout is all of these things but, importantly, the reason you can receive the payment free of tax is that you are still at a loss on your Vodafone shares.

In fact, the Revenue in a recent briefing to the public worked out that even on the US business – the part that is being sold and which triggered their “return of value” to shareholders – those Irish shareholders who own Vodafone stock as a result of their original investment in Telecom Éireann in 1999 are still at a loss just on that segment of the business despite the payout.

And that assumes you sell the Verizon stock coming to you as part of the deal.

In your case, you stand to receive between 11 and 13 Verizon shares and your plan to sell them seems reasonable, especially as you will be paying no commission under the special dealing arrangement with Computershare.

If you do decide to sell your Vodafone shareholding in its entirety, you’ll have to do that yourself.

Computershare isn’t offering to sell your Vodafone shares under this no commission service, just the Verizon ones.

Assuming you do proceed – and that your Vodafone shares all date back to the Eircom flotation – you will not face any capital gains tax on the transaction.

That Revenue briefing noted that – allowing for the Eircom loyalty shares and for the 2006 cash distribution of 22 cent a shares when Vodafone carried out a seven- for-eight consolidation on its shares – the “base cost” (ie the cost above which you are making a nominal profit) for your Vodafone shares is €4.53.

That’s before the current deal but, assuming the payout is equal to €1.25 and taking the 223.8p trading price of Vodafone stock last Friday – c€2,73 in euro terms – taking the payment in full and selling the shares would give you just €3.98 per share before dealing costs.

You’re still some way from making a profit, or being liable for tax, though clearly liquidating your holding will give you around €1,800 cash in your hand.

Of course, if you choose the default income option on the return of value, you will be paying income tax (and universal social charge and PRSI) unnecessarily on the deal.

You still will pay no capital gains tax on offloading your Vodafone shares – but you won’t be able to claim back the tax paid under the income option in the return of value.


Who has
to sign
section 4A?

I note you stated on January 21st that parents and children should sign section 4a.

However, when I rang Vodafone (my holding is MJ account AJ) advised me only to sign section 4A. Should both of us sign to be on safe side or will it be deemed invalid?

Ms MJ, email


Along with choosing the capital option, this is increasingly the major issue for Irish shareholders, judging by my mailbag.

After my piece, I received several queries along your lines and rang back to confirm.

And, while I was originally told all parties had to sign (and that is what the form says in practice), I was assured that only registered shareholders had to sign and that, as with many Irish shareholders, children noted as “account” or A/c - such as MJ account AJ in your case, only the first named was actually the registered shareholder and had had to sign.

Given the confusion – not least with the form which says all the names printed at the top of the form need to sign – I again went back, this time to Vodafone. I pointed out, exactly as you have, the warning that incorrectly filled or signed forms will be declared invalid – leaving Irish shareholders with the default income option and a nasty tax bill.

A spokeswoman for Vodafone, having checked with Computershare, tells me that, already, a number of forms have been submitted with extra signatures but that none have been rejected on this basis.

She assures me that as long as the form is signed in the appropriate place (ie at 4A on the Form of Election) then it is valid.

So, you are fine just to sign yourself but, if you choose to have the other person sign as well, it will not affect your entitlement, or choices expressed.


Were shares issued in
certificates?

I find the info pack they sent to be exhaustive especially since it requires one to cross reference to the “Circular” on various points on a regular basis.

I heard that our existing Vodafone shares (from Eircom) were issued in certificates. Is this true? I certainly do not have certificates – and likewise for friends I have spoken to who do not hold certs either. (It seems Vodafone may be requesting them in the course of transaction?)

Ms VC, email


It sounds like you mean exhausting, and you’d probably be right.

Most original Telecom Éireann shareholders will have received a share certificate for their holding. When Eircell was sold for Vodafone stock, they would have received shares in certificated form.

So, everyone has (or should have) their certificates. This is important as, without your cert, you cannot trade your shares should you choose to sell.

If you cannot find the certificate at that time, you will have to order a duplicate certificate and this is not cheap.

However, in this transaction, if you cannot find your certificate, you will be getting a Get Out of Jail Free card.

As part of the whole exercise, alongside the payback of cash and Verizon shares, Vodafone will carry out a share consolidation where it will give you one new share for roughly every two you now own. The precise ratio will not be determined until later this month.

Unless you express a preference to opt out of the default at Question 3 on the Form of Election, your new (lower) number of Vodafone shares will be held electronically by Computershare.

If you expressly want a certificate, put an X in the box at Q3 to opt out of the default and a share certificate will be sent to you.

Either way, you do not need to return your existing share certificate so if you cannot find it, you’re lucky this time.

If you do find it (or have it to hand), hold on to it until the Verizon transaction is completed and you have received your new share certificate or notification of holding in the electronic Vodafone Share Account, then destroy it. It will no longer be valid at that stage.

On a related note, US-listed stock do not issue certificates which means that if you do hold on to your Verizon stock, it will be held in an electronic CREST account for you by Computershare.


Please send your queries to Dominic Coyle, Q&A, The Irish Times, 24-28 Tara Street, Dublin 2, or email to dcoyle@irishtimes.com. This column is a reader service and is not intended to replace professional advice.

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