Vodafone-Verizon deal: Margaret Hodge raises alarm over tax loss
(Guardian Web Via Acquire Media NewsEdge) The chair of an influential select committee has called on HMRC officials and Treasury ministers to urgently examine an £84bn deal being brokered by Vodafone that is expected to avoid paying UK taxes.
Margaret Hodge, head of the public accounts committee, expressed concerns following confirmation that the British telecoms company is on the brink of a deal to sell its stake in Verizon Wireless. Reports claim that the firm will not have to pay any tax in Britain because it will take place through a Dutch holding company.
Vodafone has confirmed it is in "advanced discussions" to sell its stake for $130bn (£84bn), with reports suggesting what will be one of the biggest corporate deals ever will be announced later on Monday.
Hodge told the Guardian that HMRC officials should intervene at the earliest opportunity.
"HMRC must begin an absolutely thorough investigation to make sure that UK taxpayers receive the maximum to which they are entitled," she said.
She added that Treasury ministers should also examine whether there is a loophole being exploited by the British company.
"If there is a flaw in the law, it needs to be addressed by Treasury ministers urgently," she said.
Tax analysts believe Vodafone can structure its deal so as to reduce tax to $5bn, significantly less than the $40bn that could be due.
Under the terms of the deal, Vodafone would sell the US-registered company – through which it owns Verizon Wireless shares and a number of its European assets – to Verizon Communications. The European assets would then be sold back to Vodafone, minimising the tax bill.
Robert Peston, the BBC's business editor, is among a number of commentators who have claimed that tax officials will not be entitled to any of the proceeds because the deal would involve the sale of a stake in a US group, whose holding company is in the Netherlands.
Vodafone could also take advantage of UK legislation known as substantial shareholdings exemption, which means companies do not have to pay capital gains tax on profits made from selling shares in another firm.
If the deal goes through it will be the second most valuable corporate deal ever completed by a UK company, after Vodafone's own takeover of Mannesmann of Germany in 2000.
Company sources have argued that tens of billions of pounds could be paid out to UK investors, which would be a significant injection of cash into the economy, similar to the Bank of England's quantitative easing programme. Investors would also have to pay tax on it.
It is understood that the the stake in Verizon has been held in Vodafone's Netherlands business since it was bought in 1999.
Hodge could well raise the deal at a select committee meeting this afternoon when MPs are due to question HMRC officials over the use of 0845 numbers on advice lines for taxpayers.
It would not be the first time that Hodge and the committee have clashed with HMRC over the use of tax loopholes by Vodafone.
The committee issued scathing criticisms of a "sweetheart" deal brokered by HMRC officials with the telecoms giant over the Mannesmann deal.
Dave Hartnett, the former head of tax, was accused of letting Vodafone forgo a reported £6.75bn in tax when settling a longstanding dispute with the company.
The dispute began in 2000 when Vodafone acquired the German engineering company and mobile phone operator.
A deal was settled in July 2010, which, according to those with knowledge of it, included estimates of future profits for Vodafone for the years 2011 and 2012.
There was no implication that Vodafone had done anything wrong whilst completing the Mannesmann deal.
In a brief statement, the telecoms giant confirmed that a Verizon Wireless deal is on the table: "Vodafone confirms that it is in advanced discussions with Verizon Communications Inc regarding the disposal of Vodafone's US group whose principal asset is its 45% interest in Verizon Wireless for $130bn."
"The consideration would substantially comprise a mixture of Verizon common stock and cash."
AN HMRC spokesman said they could not comment on the affairs of an individual business.
(c) 2013 Guardian Newspapers Limited.
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