So it\’s £8 billion for Vodafone now, is it?

The numbers bandied about just seem to grow:

However, Stephen Barclay, an MP on the public accounts committee, yesterday put the figure even higher than that.

“We are looking at potentially £8 billion of tax lost,” he said during a hearing.

I do wonder where he got that money from.

For I\’ve been told by P Eye where they got their £6 billion from.

So, Vodafone was making provisions for tax at a certain rate. For there was some confusion in hte law as to whether CFC rules applied to EU subsidiaries. Everyone agreed that they did to Cayman Island or whatever, but did they to EU?

The thought was that under the freedom of establishment rules they probably didn\’t. But of course, if you\’ve got two pieces of law which appear to conflict with each other it\’s only prudent to make provisions for the worst case outcome in the accounts of a publicly listed company. So, they did, make provisions as if the CFC rules applied to the Luxembourg subsidiary.

Then came the ruling in the Cadbury case. This switched that view of the law. Now, while HMRC was still manfully insisting that CFC did apply, everyone else was saying that it\’s as plain as the nose on your face that they don\’t.

So Vodafone stopped making those provisions. So the £2 billion odd provision in the accounts was the accumulated provisions up to the time of the Cadbury judgement. Which is when the law was \”clarified\” and thus no further provisions needed to be made, even under the worst case scenario. It would be imprudent to make further provisions in the accounts of a publicly traded company to reflect tax that was not due.

HMRC keep insisting, Vodafone won at the Special Commissioners, in the High Court, the Court of Appeal said, weeeelllll, it\’s just vaguely possible that CFC does apply if it was all only being done for tax dodging purposes. What we would really like of course is a Supreme Court of EU court judgement on the point. However, at this point HMRC decided to settle. For, and this is implied, not absolutely known, HMRC were worried that they might actually lose at that top level. And there\’s another 100 or so companies using similar structures. With the Court of Appeal ruling HMRC might be able to get some tax out of some of them. Lose at the next stage and they would get nothing out of any of them.

Thus the settlement: roughly speaking, Vodafone paid up the tax they had provisioned for, the amount that had accumulated before the law on CFC was challenged. That\’s the £1.25 billion or so.

So how did Private Eye get to the £6 billion number? They simply ignored that Cadbury had happened at all. Entirely overlooked that the law had been \”clarified\”. That CFC rules did not apply to EU subsidiaries.

So, they calculated what Vodafone would have (ie, should have in their view) made as accumulated provisions if the law had not been clarified in this manner. That\’s where the £6 billion comes from.

Do note that in all of the wibble from points left no one has ever, not even one of the country\’s leading tax accountants (R. Murphy Esq) managed to give a coherent reasoning of why Vodafone might have owed £6 billion. But here it is, this is how the calculation was done, I\’ve been told this by the very people who did the calculation for Private Eye.

To offer an analogy. Top income tax was 60% once. Then it was cut to 40%. P Eye is insisting that anyone who pays only the 40% rate now is being let off tax. Because if the 60% rate had continued they would have paid more tax, they\’ve been let off, see? Entirely ignoring the point that the law itself has changed so that only 40% was due.

Vodafone was provisioning under the CFC rules, which may or may not apply to EU subsidiaries. When the law is clarified to show that almost certainly they don\’t, Vodafone stops provisioning. Private Eye calculates the amount of tax lost as if the law had not been clarified, as if the CFC rules did apply for all those years.

That\’s how you get to £6 billion. By ignoring that the law had been so clarified.

Cue the Teenage Trots gluing themselves to TopShop windows etc. All on the basis of this sort of wibble.


7 thoughts on “So it\’s £8 billion for Vodafone now, is it?”

  1. This all stems from ignorance, basically.

    To many/most people, how big businesses make money appears to be some kind of alchemy, so they assume there must be unlimited amounts of cash the government can grab from them without consequences in terms of jobs, prices, products or services.

  2. Steve

    Exactly. It’s not just the zombies interviewed at the occupy sites (I’m willing to admit they probably cherry-picked the worst cases). I see it day to day in my acquaintances here. educated people, occupying government jobs.

    Corporate = evil per se. Non-socialists are evil babyeating, greedy bast*rds who don’t CARE.

    Arguments based on non-facts, prejudice and total lack of information.

    On another subject, I now ask people who want to talk about global warming if they know what the IPCC is, if they have heard of the controversy surrounding the hockey stick (the what? they say) and if they know what Climategate is about. The answer is invariably ‘No’. So I simply refuse to discuss the matter and pass them web sites (from both sides of the divide) and tell them to come back in 6 months’ time.

  3. Pingback: Vodafone and the £8 billion tax lie | make trouble, question everything

  4. To be fair, I understand that MPs, even those on public accounts committees, often just have chunks of money turn up in bank accounts, or in response to expenses claims, as their main source of income, and it’s thus not unreasonably they might regard it as alchemy: turning their leaden abilities into a representation of gold.

    Furthermore, tax law is sufficiently complex that government ministers, even Business Secretaries, can become a little confused about their liabilities.

  5. A very clear description of why Vodofone is not avoiding tax. In fact they paid more than they needed to.

    If Stephen Barclay* thinks it’s £8bn now, I’m betting that it won’t be long before some nutter claims that it’s £10bn.

    My money is by the end of the year. Any takers?

    * Stephen might have worked at the FSA and Barclays but he is a solictor by training, not an accountant or econmist.

  6. SadButMadLad: one reason “estimates” of the “unpaid” tax bill keep going up, is by including ever-greater interest charges on the total tax “owed”. So we almost certainly will see a figure of £10bn being claimed eventually (unless this case gets forgotten about, but I doubt it since Vodafone and Philip Green are the UK Uncut pin-ups), but I think it’ll come in a few years time rather than within the next two months.

  7. if this is correct, I applaud you for your dogged pursuit of the details. And I abhor the utter lack of interest in the details on the part of UK Uncut, Guardian journalists etc.

    this despite me being on the other side of the fence to you when it comes to the corporate tax avoidance issue.

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