How tax drove Vodafone brand to Dublin: Phone group's royalties offshoot employed no one but had euros 380m turnover
(Guardian (UK) Via Acquire Media NewsEdge) It is an association that has draped Vodafone's red ensign across racing racks from Silverstone to Shanghai. The British mobile phone group's longstanding involvement with Formula One, through multimillion-pound sponsorship deals with Ferrari and then McLaren, has helped make its brand world famous.
But few of Vodafone's customers will be aware that, for four years, the marketing of these high-profile sponsorship deals was run not from its headquarters in the English market town of Newbury but from a satellite office in Dublin.
In 2002, Vodafone began using a Dublin-based subsidiary, Vodafone Ireland Marketing, to collect royalties and brand management fees from operating companies and joint venture partners doing business under the British brand. The collections were made around the world - with the exception of the UK and Italy.
The sums grew steadily. In 2006, Vodafone's royalties went up from 0.7% to 1.75%. By 2007, Vodafone Ireland Marketing Ltd, employing no staff and registered to an industrial estate in the suburb of Leopardstown, reported a turnover of euros 380m (pounds 325m) a year.
Eventually, Vodafone decided the subsidiary should employ staff, and told certain members of its global marketing team in Newbury and London they would have to relocate to Ireland.
By September 2007, global director of brand customer experience David Wheldon, now a Barclays executive, had agreed to move and head the team. Global chief marketing officer Frank Rovekamp, while remaining in London, became a director of Vodafone Ireland Marketing. It was decided the Dublin team would oversee international advertising accounts, and Vodafone's big sponsorship deals including Formula One, the Champions League and the Ashes cricket Test series.
Two former Vodafone marketing staff, who spoke on condition of anonymity, said the request to move came out of the blue. "Suddenly, within a very short period of time, the team were uprooted from the base in London to Dublin," said one. "Everything was sorted out really, really quickly." No reason for the move was given in writing, staff said, but in background conversations with managers, they were given to understand it was important for tax reasons to show brand marketing activity was taking place in the same country - Ireland - as the brand royalties were being collected.
"HR was clearly instructed by the legal team as to what they were allowed to say," according to the source. "Clearly this was a very important financial move, because the team was offered lucrative relocation packages. They were treated quite royally. There was no financial reason other than if the team hadn't moved they would have exposed themselves to a huge tax liability."
The second source said: "It was quite clear: go to Dublin and go quickly or here's your redundancy. It's fair to say morale was pretty awful at the time."
Asked about the relocation, the company said in a statement: "Vodafone's group brand and marketing function was established during a period of significant international expansion. Vodafone is a global business, and it is therefore feasible to locate centralised group functions in different locations depending on a range of factors. Dublin was identified as a location for this activity on a number of grounds including the commercial, regulatory and tax environment in Ireland at that time."
The Irish accounts illustrate one advantage: if the firm could show it was "carrying out trading activities" from Dublin, the corporation tax rate would be halved. According to the 2008 company filings: "A confirmation has been obtained from the Irish Revenue that the company is now carrying out trading activities and, accordingly, subject to the corporate tax rate of 12.5%." The rate would apply from 1 November 2007.
While the Irish tax authorities were accommodating, HM Revenue and Customs raised objections to Vodafone's previous arrangements. Its Irish tax payments were challenged in a dispute that was eventually settled in March 2009. Vodafone said the settlement related to years prior to 2007. It declined to say how much was paid to HMRC but accounts show it claimed back euros 67m from the Irish government, which was handed to Britain "as part of the overall settlement". This settlement, which has never been mentioned separately in Vodafone's annual reports, or discussed publicly by the company, was entirely separate from the pounds 1.25bn Vodafone paid HMRC in 2010 after a long dispute over its activities in Luxembourg.
HMRC is prevented from discussing the affairs of individual taxpayers but Vodafone says HMRC has made no allegation of wrongdoing on its part. The dispute, it says, "related to a number of technical factors regarding inter-group transfer pricing arrangements".
In October 2011, the marketing team was ordered to return to Britain. The Irish brand subsidiary was wound down, and according to a company spokesman its activities have transferred to a UK company that pays all its profits into the British plc and is taxed under UK rules.
Before it closed, the Dublin office paid more than euros 1.04bn (pounds 900m) in dividends during a four-year period to a parent company, Vodafone Investments Luxembourg Sarl - based in the low-tax jurisdiction of Luxembourg.
Vodafone branding is highly visible as McLaren driver Jenson Button makes a pit stop during this year's Formula One grand prix in Bahrain Photograph: Rainer W. Schlegelmilch/Getty Images
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