august-20-02Vodafone’s controversial tax strategy has made it a popular target for tax avoidance protestors. It’s also, according to current headlines, cost it dearly with Her Majesty’s Revenue and Customs in the form of a multi-million pound settlement for previous tax mistakes.

The well-known UK mobile communications company reportedly used Irish offices to avoid paying tax on UK-based revenue from 2002 to 2007. Hundreds of millions of pounds were funnelled through Vodafone’s Irish subsidiary – a company with no employees and minimal corporate structure of its own.

The money channelled through Ireland was allegedly transferred to Vodafone’s own accounts in Luxembourg in the form of dividends. With annual turnover exceeding £320 million, the company’s Ireland office is believed to have been used to transfer over £800 million worth of dividends to the company’s European accounts.

The Guardian noted a similarity between the mobile communications company’s tax strategy and that used by Apple to avoid the UK’s corporation taxes. Irish corporate tax rates are typically 25 percent of net profits, although companies with staff based in Ireland are able to pay a modest 12.5 percent of profits in corporation taxes.

Vodafone’s Irish tax strategy, and that used by companies such as Apple, allowed it to avoid the UK’s 28 percent corporation taxes. The company settled its tax affairs in 2009 with a multi-million pound payment to HMRC using money that was recovered from Irish tax authorities.

Economists and political commentators have expressed concerns that Vodafone’s status as one of the government’s top suppliers of mobile phones might not match its history of tax avoidance. The government has defended its use of Vodafone by noting that it achieves significant savings by working with the large company.

 

The government reportedly saved as much as £800 million by renegotiating many of its contracts with suppliers such as Vodafone.

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