Vodafone cites tax rate of 25% paid by Irish subsidiary

Vodafone says it paid tax on profits from royalty collections through a Dublin subsidiary at a rate of 25 per cent before settling with UK revenue officials for the same activity.

Revelations that the company had been processing profits through a company that employed nobody here between 2002 and 2007 has led to a renewed focus on Ireland’s status as a “tax haven” for multinationals.

The company, Vodafone Ireland Marketing Ltd, since disbanded, had an annual turnover of some €380 million by the end of 2007 through the collection of global royalties on branding.

Over four years this contributed to more than €1 billion in dividends sent to the low tax jurisdiction of Luxembourg.

The Guardian newspaper reported yesterday that in order to protect the subsidiary's business, Vodafone moved senior marketing managers to Dublin in order to protect revenues from UK taxation, similar in approach to the recent activity of Apple.

The Irish corporation rate is 12.5 per cent which compares favourably to the 28 per cent it would have paid in the UK between 2008 and 2010.

However, the parent company said it had paid 25 per cent on Irish profits until its relocation to the UK in 2011.

Revenue & Customs
In 2009, Her Majesty's Revenue & Customs (HMRC) reached a settlement with Vodafone over its Irish tax returns and while the size was not disclosed in company accounts, the company reclaimed some €67 million in tax payments made here.

It said its settlement with HMRC was necessitated by “a number of technical factors regarding inter-Group transfer pricing arrangements”.

“In accordance with the treaty between the UK and Ireland which prevents double taxation on the same income, the Irish government credited taxes previously paid by Vodafone and these were then paid to the UK Treasury as part of the overall settlement.”

Neither Revenue nor the Department of Finance would comment on the case although the latter did point to a higher 25 per cent band applicable to passive or "non-trading" company activity.

The Irish Development Authority (IDA) declined to comment despite a continued focus on Ireland's taxation regime in recent months.

Jim Stewart, associate professor of finance at Trinity College Dublin said: "This is just another example of Ireland being used as a tax haven.

Internal Revenue Service
"Revenue's position would seem to be that Apple and [companies in similar tax arrangements] are the US and the IRS's [Internal Revenue Service] problem that they have to sort out," he said.

Vodafone Ireland Ltd, its Irish based entity, was established here in 2000 and now has 2.46 million customers.

Fianna Fail’s spokesman on finance Michael McGrath said: “The Vodafone example proves yet again that the only way of tackling aggressive tax avoidance by multinationals is through international cooperation.”