Vodafone is selling its stake in US mobile network Verizon for about $130 billion according to press reports. That’s more than £80 billion.
And the deal will almost certainly be tax free. No great offshore planning will be needed to achieve this: Gordon Brown introduced the substantial shareholdings exemption in 2002. The result is that Vodafone has an automatic right not to pay tax on this gain in the UK.
Yes, there is that SSE.
But it’s also true that the Verizon stake is being sold for a mix of cash and shares. And the cash part is less than what Vodafone paid for AirTouch 15 years ago. A share swap doesn’t trigger a CGT or corporation tax bill. And if the cash part isn’t a profit…..
Is there genuinely no beginning to his talents?
Just a few points:
1. SSE is irrelevant. This is a disposal by a Dutch company. It’s the Dutch participation exemption that governs the treatment.
2 The UK share-for-share exchange comments are not relevant either as it’s happening in the Netherlands.
3. There is a piece of UK legislation which is relevant is the dividend exemption in CTA2009. That is what lets them get the proceeds onshore tax-free.
TP is right, but the broader principle is that even if this wasn’t being done through a Dutch holding company it would still be tax free.
But I’m not sure about Tim’s share swap point. Do you compare the amount of cash to the original cost, or to a proportion of the original cost?
For example, if the cash element is £1bn and the share swap element £9bn, the cash element is 10%. So in seeing whether there’s a profit on the cash element, do you compare £1bn to the original cost or just 10% of the original cost?
Genuine question; it’s so long since I’ve done a partial share swap that I can’t remember which way it works. Rather than looking it up it’s easier to see if someone here knows the answer.
Richard
You’re right to be unsure about that point – assuming we’re discussing a hypothetical UK transaction. You have to compare the total proceeds (cash + shares) with the indexed base cost. Then you have to make sure that your share-for-share is actually exempt. But you only have to look at that if SSE doesn’t apply.
You’d do a proportional split: if the cash is 10% of the proceeds then you work as if 10% of the shares were being sold for cash and the other 90% were being swapped for shares.
So you’d probably have a gain on the cash element, if it weren’t for the fact that the transaction isn’t taking place in the UK. And if it were then SSE or a participation exemption would take the gain out of tax unless you cock up badly.
The share-for-share should normally be tax-free as it’s not treated as a disposal – the new shares are treated as if they’re the same asset as the old ones. This only defers the tax until a future disposal of the new shares, but that should also be outside the UK, or inside SSE. Quite what happens with the share-for-share under foreign tax rules is another matter, but I’d expect a similar result even if the mechanism differs.
There seems to be a relatively small US tax charge on the deal, but that seems normal – US tax charges crop up everywhere. I always worry I’m incurring a US tax charge when I take the bins out 🙂
Vodafone are selling something. This gives rise to an increase in money for them, and therefore they should be taxed. Also, they do nothing socially useful and UK Uncut have targetted them so they must have done something wrong.
Candidly, the argument that they should pay tax because they didn’t make a profit is pure neoliberal sophism. A ‘loss’ after all is just an accounting trick to avoid tax and this loophole must be closed soon.
Does “The UK’s leading tax expert on tax” have any tax qualifications other than being a Chartered Accountant and Economics graduate?
Noel (or should that be Neol’), you are being obtuse. Polly Toynbee has said that I’m ‘razor sharp’ and I’ve appeared on BBC before. I’m an expert. A candid expert.
If I may be candid here, Richard Murphy is not a tax expert, but a tax twat. And, candidly, an offensive, mentally unhinged tax twat at that.
Richard Murphy is confusing me. Where’s Murphy Richards to clarify things when you need him?
but when the non-exempt investors get a special distribution, they’ll pay loads of tax. Ritchie and Polly haven’t seemed to notice.