Vodafone in multimillion tax deal over Irish office

Previously unreported settlement with HMRC came in wake of dispute over tax paid by subsidiary

Vodafone made a previously unreported multimillion-pound settlement with HM Revenue & Customs in the wake of a dispute over the tax paid by an Irish subsidiary created to collect royalty payments for using its brand.

The UK-based mobile phone group used an Irish subsidiary, which employed no staff between 2002 and 2007, to collect hundreds of millions of pounds a year in royalty payments from operating companies and joint ventures around the world. By 2007, Vodafone Ireland Marketing Ltd, a company registered to an industrial estate in the Dublin suburb of Leopardstown, was reporting a turnover of €380m (£320m) a year.

During a four-year period, these royalty payments, collected from most countries except the UK and Italy, have helped Vodafone send more than €1bn worth of dividends to the low tax jurisdiction of Luxembourg from Dublin. The dividends, which include a final payment of €142m due to be delivered this year, came from profits made after taking advantage of Ireland's low corporation tax rates.

In an arrangement which echoes those made by Apple in Ireland, Vodafone moved senior marketing managers to Dublin to protect global royalty revenues from UK taxation, and trigger a lower Irish corporation tax bill from 25% to 12.5% of profits. This was significantly lower than the UK corporation tax rate, which between 2008 and 2010 was 28% of profits.

Accounts filed in Dublin show that in 2009, HMRC settled a dispute with Vodafone over its Irish tax returns. The overall size of the settlement has not been revealed, but it involved Vodafone reclaiming €67m from the Irish government in tax that should have been paid in the UK. Vodafone, the world's second largest mobile phone company by revenue, has paid no corporation tax in Britain for two successive years, despite paying £2.6bn in international taxes in 2012.

The company confirmed its Irish settlement had never been separately disclosed in its annual reports, and was not connected to a £1.25bn payment to HM Revenue and Customs in 2010 to settle a much publicised dispute over the use of a Luxembourg subsidiary. A spokesman for HMRC refused to confirm whether any settlement over Vodafone's Irish tax affairs had been made, saying it was prevented by law from discussing the affairs of individual taxpayers.

Vodafone went to great lengths to protect its Irish income, eventually relocating a section of its global marketing team from the UK to Dublin in 2007. The transferred staff were responsible for handling such high profile sponsorships as the operator's longstanding deal with Formula 1 and the Champions League.

The Irish brand subsidiary was wound down after the staff were brought back to the UK in 2011. According to a company spokesman the unit's activities have transferred to a UK company which pays all its profits into the British plc and is taxed under UK rules.

The disclosure comes as MPs revealed the British mobile phone group, which is under fire for its minimal corporation tax payments in this country, has emerged as the largest supplier of mobile phones to the government. More than 30 departments and public bodies, including the prime minister's office, have signed contracts worth £14m a year with Vodafone.

In a stand against tax avoidance, ministers updated laws in April to ensure companies whose tax returns have been challenged by HM Revenue & Customs on grounds of tax abuse can be disqualified from working for the government.

Vodafone strongly rejected any suggestion of tax avoidance and said there have been no allegations of wrongdoing from HMRC. The company said its disputes with the UK taxman over its tax arrangements in Ireland and Luxembourg would not block it from government contracts under current rules, but MPs argued there was a principle at stake.

By 2007, a Vodafone subsidiary registered to an industrial estate in Dublin was reporting a turnover of €380m (£320m) a year."The fact that government departments are using companies which have been challenged about the tax they owe clearly shows that current tax laws need reform," said Labour MP Pamela Nash, whose parliamentary questions helped reveal the extent of Vodafone's government work.

The rules which eventually came into force have been described by tax experts as narrow in scope, and Vodafone says they would not have applied to its HMRC settlements, even if they had been in force at the time.

"Vodafone has long been a major supplier to central UK government departments and we have always complied in full with all procurement criteria defined by government," the company said in a written statement.

"In all respects and at every point, Vodafone has conducted itself with the highest integrity and in full compliance with the law."

Vodafone's status as the dominant supplier of mobile phones to government departments was exposed by a series of parliamentary questions asked by Conservative and Labour MPs. Questions were put by Nash, by Labour MPs Dai Havard and Jenny Chapman, and Tory MPs Gary Streeter and Mike Freer.

Steve Barclay, a member of the Commons Public Accounts Committee, which has previously tackled Vodafone's tax affairs, said: "The government now needs to close any existing tax loopholes to ensure that large companies, such as Vodafone, are not legally able to avoid paying their fair share of tax. The need for swift action is particularly highlighted when it is public money that is paying for these substantial contracts with private companies."

Vodafone is the largest or only mobile supplier to a raft of departments, including the Cabinet Office, which covers David Cameron and Nick Clegg's offices, the Treasury, including HMRC, the Department for Business, Innovation and Skills, the Ministry of Defence, the Department of Health, and the Department for Work and Pensions.

Many of the contracts are based on commercial terms agreed between the Cabinet Office and Vodafone in a Memorandum of Understanding that runs from 2010 to 2014. While rival networks EE and O2 have some government work, EE is pushing for more open competition in the awarding of mobile contracts by ministries.

A Cabinet Office spokeswoman said: "Since 2010 we've radically changed the way government buys goods and services to make the most of our unique buying power.

"Last year alone these reforms saved taxpayers £800m by renegotiating contracts with our largest suppliers, of which Vodafone is one.

"We are determined to continue to increase competition and innovation amongst a range of suppliers to make sure that every option to cut waste and make savings are explored, especially when opportunities to review large-scale contracts arise."

Chief secretary to the Treasury Danny Alexander launched an overhaul of the rules around government contracts last year, saying "taxpayers' money should not be funding tax dodgers".

Article Source : http://www.guardian.co.uk

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Revealed: 'Sweetheart' tax deals each worth over £1bn

Four corporations that reached settlements worth £4.5bn between them are among those let off lightly

The scale of the government's "sweetheart" tax deals – individual secret agreements drawn up between tax officials and corporations to settle disputes – can be revealed for the first time after previously unseen documents showed that just four settlements were worth £4.5bn between them.

A leaked document sent by Dave Hartnett, the former head of tax at HM Revenue and Customs (HMRC), to David Gauke, the exchequer secretary at the Treasury, discloses the figure, which has not been released by HMRC before on the grounds of preserving "taxpayer confidentiality".

The document describes deals in excess of £1bn as "not uncommon". The size of the figure has been seized upon by MPs and tax campaigners who want HMRC to release details of how much tax was owed by each of the four unnamed companies before the deals were struck.

Margaret Hodge, the chair of the Commons public accounts committee, said: "If we got £4.5bn in, how much did we not get? That is what taxpayers will want to know, and I'll be raising this with HMRC through the committee.

"Whilst it is in the interest of the government to collect monies, these are huge sums. If there were deals involved, we need to know that the companies paid a fair amount on the profits they made from their businesses in the UK."

The revelation comes as separate documents disclosed in the Guardian show that tax officials used intrusive investigative powers designed to help them catch serious criminals to try to prove that the whistleblower who uncovered one of the first sweetheart deals, involving Goldman Sachs, had spoken to the Guardian.

The belongings, emails, internet search records and telephone calls of HMRC solicitor Osita Mba and the mobile phone records of his wife, Claudia, were examined by HMRC investigators using powers to investigate criminals, the previously undisclosed documents reveal. In 2011 Mba disclosed the existence of the Goldman Sachs deal by passing information to two parliamentary committees and the National Audit Office (NAO) under whistleblowing legislation.

The disclosures about the multibillion-pound scale of the government's deals come from a seven-page memo sent by Hartnett in December 2011 as he asked for public support from Gauke in the face of growing criticism in the media and parliament.

He wrote: "In 2006, HMRC adopted a new approach to reaching tax settlements with large business through building constructive relationships and encouraging mutual openness and transparency, increasing certainty for business and reducing the time taken to resolve issues.

"Settlements of above £1bn are now not uncommon and £4.5bn … has come from just four settlements with bespoke governance."

A 2011 NAO inquiry into the four settlements found that they were made outside the high risk corporates programme set up in 2006 to ensure proper governance of deals with corporations.

Hartnett claimed in his submission to Gauke that the programme had allowed the government to bring in an extra £9bn in revenue in total – a figure previously disclosed to parliament. MPs on two select committees have claimed that the deals are secretive and allow corporations to develop a cosy relationship with tax officials.

A document sent by Dave Hartnett, the ex-head of tax at HMRC, to the exchequer secretary at the Treasury, describes the tax deals

The £4.5bn figure is believed to include a previously reported Vodafone deal which ended when the telecoms giant paid £1.25bn.

A committee of MPs was told that the Vodafone tax bill should have been £6bn or more. That figure is disputed by Vodafone.

The £4.5bn does not include, however, the relatively small Goldman Sachs agreement when the bank was let off paying up to £20m.

The revelations will be of interest to solicitors for the anti-tax avoidance organisation UK Uncut who on Thursday are taking HMRC to the high court, claiming that the deal which let off Goldman Sachs from paying up to £20m in interest charges was unlawful.

Anna Walker, a spokesperson for UK Uncut Legal Action, which campaigns on tax issues, said: "It is not legally, politically or morally acceptable to let big business off paying the tax that they owe. David Cameron and George Osborne's government's claims that they are leading the world in clamping down on tax ring hollow as these backroom 'sweetheart' deals come to light and no real action is taken."

The high court will hear UK Uncut's claims that Goldman tried to funnel employees' bonuses through an offshore tax scheme based in the British Virgin Islands, avoiding paying national insurance contributions.

HMRC admits it made a mistake in reaching a deal with Goldman, resulting in underpayment of interest on the tax due. But it argues that it acted lawfully in doing so. The hearing is expected to last for one day.

The case was granted permission to go to a full hearing in June 2012, one day before the NAO concluded a judge-led investigation into tax settlements which found that the Goldman Sachs deal was reasonable.

However, the Guardian disclosed last month that the head of the NAO, Amyas Morse, appeared to undermine the process before it had even started by telling Hartnett that the inquiry would find "nothing of substance".

It is believed that HMRC's defence rests on the findings of the NAO report that the deal was "reasonable".

A spokesman for HMRC said that it could not comment on individual agreements, but "bespoke deals" had been found to be good value.

"The National Audit Office looked into the 'bespoke governance' settlements, finding they represented good value for the country and were properly carried out. However, since then we have significantly improved the transparency of the governance around our large business settlements," he said.

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Article source : http://www.guardian.co.uk