How Vodafone avoids paying tax amounting to what could be confused with its telephone numbers

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Mark Richardson of Appleton Richardson ( comments on Vodafone's tax affairs.

Vodafone’s ( settlement with Revenue boss Dave Hartnett has been the most tax efficient excise that finance director Andy Halford has created, with his personal income increased and now mistaken for a telephone number. The hundreds of millions gifted annually by UK Taxpayers to Vodafone’s free cash flow which is the measure used to calculate the amount of shares awarded annually on top of his £1.7m cash income is staggering.

HMRC was paid £800m upfront with a balance paid over five years of £450m in settlement of a dispute covering many times this amount. Trafficking money through newly acquired Mannesmann a Luxembourg subsidiary company Andy Halford has boasted to City analysts that he thinks the Tax settlement although it is a reasonable-sized cash outflow here is actually very good. We have got a lot of benefit from this over the last nine years, the scheme that started in 2001 by dumping billions of pounds of interest on loans to the new subsidiary.

What was more, the deal now secures the position going forwards a reasonable proportion of the group’s free cash flow does come from the tax-efficient structuring.

Simple terms a chunk of Vodafone’s stock-market-impressing cash flow, which has grown from 2.5bn a year to 7bn over that period has been achieved with tax-efficient “avoidance”.

The deal preserves the benefits of the group’s tax structure which represents a gain rather than a cost of 1.8bn because the company had set aside 2.2bn for tax plus 0.9bn for interest on the tax which it has been let off entirely. The 2.2bn had been set aside as early as March 06 the deal covered later years, the scheme saw vastly increased amounts for which nothing was set aside due to the Cadbury case. When the UK courts confirmed in 09 that the Cadbury case did not prevent HMRC going for Vodafone the door had been kicked aside and a big settlement was on for the Revenue.

Hartnett without consulting his own lawyers took only a drop of which almost was certainly unlawful and has given the company a free-hall pass for the future with more than 2.5bn a year parked tax-free in Luxembourg, we will have to wait and see where Hartnett goes once he leaves the Revenue?

Mark Richardson

Appleton Richardson & Co

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