British revenue the only loser in Vodafone blockbuster deal
Strident Hodge on shaky ground as she was minister in Labour government that provided loophole
Of the £84 billion being received by the British mobile phone company, its shareholders are to get £54 billion, via a mix of cash in the form of a special dividend and Verizon shares. Photograph: Jin Lee/Bloomberg
Everyone’s a winner in the blockbusting Vodafone deal with Verizon, one of the biggest takeover moves in corporate history. Vodafone is cock-a-hoop because it gets a top-dollar price of £84 billion (€99 billion)for its Verizon stake and Verizon is delighted to put an end to years of wrangling and take full control of America’s largest mobile phone business.
Vodafone shareholders, meanwhile, are over the moon at the huge payout they will receive from the proceeds of the deal. Of the £84 billion being received by the British mobile phone company, its shareholders are to get £54 billion, via a mix of cash in the form of a special dividend and Verizon shares.
Boost for Britain
The list of winners goes on. The banks and advisers will share fees estimated at more than £150 million and there’s even a spin-off for the rest of us, as the huge influx of funds boosts the British economy in what has been described as “QE Voda”, a corporate version of the Bank of England’s quantitative easing programme.
The stock market is likely to get a lift too. As one of Britain’s biggest companies, Vodafone has an army of some 500,000 private shareholders, many of whom will reinvest their windfalls in order to escape paying tax, thus channeling the funds back to the market.
So, trebles all round? Not, unfortunately, at Her Majesty’s Revenue and Customs (HMRC), which it transpires will not receive one penny in tax as a result of the deal, even though Vodafone is a British company.
Rubbing salt into the treasury’s wounds, Vodafone will pay tax to the US authorities, to the tune of $5 billion.
The (perfectly legal) structure of the deal has put the proceeds well beyond the reach of Britain’s tax authorities, as Vodafone’s shares in the Verizon venture are owned by a holding company based in the Netherlands. The Netherlands company can then repatriate the funds from the sale to the UK, still attracting no tax, thanks to legislation brought in just over 10 years ago.
The aim of that legislation – known as “the substantial shareholding exemption” and contained in the 2002 Finance Act – was to ensure British companies could compete with those based in more liberal tax regimes, and aimed to free them to make investment and restructuring decisions based on commercial criteria rather than for tax reasons.
MPs were swift to criticise Vodafone for the structure of the deal although, as chief executive Vittorio Colao pointed out repeatedly, the 2002 legislation ensures it made no difference whether the shares were held by a UK company or one based in the Netherlands: there would still be no tax to pay.
High-profile tax battles
Vodafone has been embroiled in a number of high-profile tax battles over the years. It was alleged to have entered into a “sweetheart deal” with HMRC after its last huge deal, the £112 billion takeover of the German Mannesmann company in 2000. It is estimated to have escaped £6.75 billion of tax as a result of that controversial deal.
There are calls now for the law to be looked at again and a few somewhat optimistic MPs demanded that Vodafone voluntarily stump up some tax “on moral grounds”.
That’s clearly not going to happen – and why should it? The law as it stands is crystal clear: Vodafone has no UK tax liability. Indeed, the small print of the deal includes a hefty break-fee of about £1 billion payable to Vodafone if the deal were to be scuppered by the UK or US authorities bringing in new laws that would affect the tax charge.
One MP leading the charge “for something to be done” is Margaret Hodge, the chairwoman of the influential public accounts committee, which has recently held multinationals such as Google, Starbucks and Amazon to account over tax.
Hodge said: “It [Vodafone] is a British company with British customers. It takes advantage of services provided by the public purse and should pay its rightful dues.
“We need assurances that HM Revenue & Customs have crawled over this deal and done its damnedest to make sure taxpayers receive the highest amount of this sudden windfall. If there is a flaw in the legislation, Treasury ministers should look at it urgently.”
Hodge, an opposition Labour MP, is on somewhat shaky ground here, however. When the then chancellor Gordon Brown introduced the substantial shareholding legislation 11 years ago, she was a government minister and supported the changes. Perhaps the time to shout about it was back then?
Fiona Walsh is business editor of theguardian.com