Explaining Vodafone taxes once again

I hadn\’t realised this but it does make perfect sense:

Vodafone has been heavily criticised for its tax arrangements after it paid no UK corporation tax last year, despite being headquartered in Newbury, Berks. It paid £700m in payroll and other taxes, but wrote its corporation tax contribution off against capital expenditure of £575m, as well part of the £5.96bn it paid for spectrum in 2000.

That £6 billion is obviously a business expense, it buys spectrum for 15 years and thus will, one assumes, be written off over 15 years.

That\’s a £400 million a year write off against UK operating profits, no? Add that to the £575 million (I think) capital investment in the UK network last year and one can see how there\’s no tax bill on £402 million of adjusted profits.

Which leads me to ponder: who has Vodafone pissed off to be getting this much attention? There\’s definitely something of a campaign against the company. A series of allegations of tax dodging none of which have actually come to anything once all the details are known.

Some of these allegations (all of them?) can be traced back to Richard Brooks at Private Eye. So what happened? Did someone at Vodafone screw his pooch? Nick his mistress? Not respect his authoritah when he was a tax inspector?

I can definitely hear the sound of knives being sharpened: but why?

9 thoughts on “Explaining Vodafone taxes once again”

  1. Hasn’t Ed Balls line been that although Gordon Brown may have, in hindsight, not got the best deal for the UK taxpayer with the sale of half the UK gold reserves back in 1999 this pales into insignificance compared to the £20bn raised from the 3G auction.

    But this was all off-settable against future tax ?

  2. Yes, it is tax-deductible, just like virtually anything else private companies buy from the state. But while the state sees £20bn of future profits shielded from corporation tax, it has also received £20bn for “nothing”. So it’s ahead, having received the full £20bn instead of merely the corporation tax on that amount.

  3. What Christie said plus the state is ahead because of the time value of money (NPV of 400 mn a year for 15 years being worth less than 6 bn)

  4. I suspect that it’s that very British trait of doing down success combined with ignorance on how a business is run, together makes a good story in the papers. I note that this is the second time in three weeks that this has run in the Telegraph. There’s a similar witch-hunt on MVNO Lycamobile in the Guardian, which I’ve blogged about here – http://blue-burmese.blogspot.co.uk/2012/06/sigh-not-again.html, although my conclusion was that it was about pandering to reader prejudice. As Tim says, none of the stories on Vodafone stand up to scrutiny but mud sticks unfortunately.

  5. So if I buy shares, is that tax-deductible then? In the same way it seems to be for Vodafone?

    Do I as a private individual, get to write down the cost of the shares against dividend payouts for years to come?

    And if not, aren’t we giving legal persons some preferential treatment over natural persons?

  6. JamesV,

    There are lots and lots of things that ars tax deductible for businesses but not for consumers (Vat for one). That’s because business producd whereas consumers produce and because the taxation of companies (mainly) relates to profits (i.e. revenues – costs)

  7. James V,
    actually here in Australia if you took out a loan to buy those shares, and you earn income (or have the reasonable expectation to get dividends) then you can claim the interest payment on the loan as a tax deduction. Not the principal (which would make no sense), but the interest. How it it in the UK?

    In any case the premise of your comment misses the point – businesses may write off over time (depreciate) an acquired asset. Frankly it promotes investment. In this case it’s a phony asset created by the gummint for which they have been more than adequately compensated, so claims the exchequer (or whatever the Hell anachronistic silliness you call your tax department) is being short-changed is a bit misguided.

    The other misguided bit about this whole thing is that the creation of the “asset”, because it’s virtual, has added nothing much productive to the world except to the extent that the government can blow it on wind farm subsidies, heroin injecting rooms or outreach programs for lesbians and wotnot.

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