Controversy as Vodafone books £18bn credit from tax losses

Phone giant denies dodging tax as Luxembourg structure comes under fire again

Vodafone has triggered a fresh controversy over its tax arrangements after claiming a colossal £17.67bn in tax losses that helped its half-year profits rocket.

Much of the tax loss – £15.83bn – arose from its Luxembourg subsidiary which has been criticised in the past by anti-tax avoidance campaigners.

The mobile giant dismissed suggestions it was avoiding tax, however, and insisted the move "does not change the amount of tax we pay in cash anywhere in the world".

Pre-tax profit in the six months to September was £1.51bn but the deferred tax losses sent post-tax profit soaring to £15.71bn.

The FTSE 100 firm's decision to claim the historic tax losses – £15.83bn from Luxembourg and £1.84bn from Germany – risks turning the spotlight back on Vodafone's complex financial arrangements.

The company said it had accumulated the tax losses over many years. The decision to include them now was "triggered" by its £84bn sale of its 45 per cent stake in America's Verizon Wireless.

The chief financial officer Andy Halford said "accounting rules require us to put a value on the balance sheet" given the change to the group because of the Verizon deal. He said Vodafone was not trying to avoid corporation tax by claiming the tax losses. "It's nothing to do with it. It's all perfectly above board."

He said the claim goes back to Vodafone's £110bn purchase of German operator Mannesmann in 2000 that led to the British group taking huge writedowns in subsequent years. "They are losses that have been agreed with the tax authorities and have been disclosed in our annual reports. It puts a value on what's already been there. It doesn't change the amount of tax we've been paying recently."

A Vodafone spokesman added that the "deferred tax asset" was "purely an accounting change" and it would not cut its tax bill in future. "International accounting rules insist that we must now recognise our historic losses all in one go," the spokesman said. "This has no impact at all on our tax situation in the UK."

However, in a sign of confusion, even City analysts at investment bank Berenberg said in a note to clients they understood Vodafone's tax bill would fall, "although at present we are not sure we understand why".

It is common practice for companies to accumulate tax losses for years before deciding when to "utilise" them. But one leading accountant, who asked not to be named, said Vodafone's £17.67bn tax credit would attract attention because "it's such a big number from a very important company".

Taxation is a sensitive subject for Vodafone which has repeatedly come under fire for basing some of its operations in low-tax Luxembourg and paying no corporation tax in the UK for the last two years. The group has also faced controversy in Britain over a tax deal with HM Revenue & Customs, and it continues to battle with Indian authorities.

The results showed Vodafone had earnings before interest, tax, depreciation and amortisation of £585m in the UK in the last half-year, with a corporation tax bill of just £5m. Vodafone will also pay only around £3bn in tax on the Verizon Wireless sale under the "substantial shareholding" rule.

A "brutal" market in southern Europe sent sales in the last quarter down 4.9 per cent.

Start your day with The Independent, sign up for daily news emails
election 2015The 10 best quotes of the campaign
A caravan being used as a polling station in Ford near Salisbury, during the 2010 election
election 2015The Independent's guide to get you through polling day
David Blunkett joins the Labour candidate for Redcar Anna Turley on a campaigning visit last month
voicesWhat I learnt from my years in government, by the former Home Secretary David Blunkett
ebooksA celebration of British elections
  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Ashdown Group: Editor-in-chief - Financial Services - City, London

£60000 - £70000 per annum + benefits : Ashdown Group: A highly successful, glo...

Ashdown Group: Junior Application Support Analyst - Fluent German Speaker

£25000 - £30000 per annum + benefits: Ashdown Group: A global leader operating...

Guru Careers: Management Accountant

£27 - 35k + Bonus + Benefits: Guru Careers: A Management Accountant is needed ...

Guru Careers: Project Manager / Business Analyst

£40-50k + Benefits.: Guru Careers: A Project Manager / Business Analyst is nee...

Day In a Page

General Election 2015: ‘We will not sit down with Nicola Sturgeon’, says Ed Balls

'We will not sit down with Nicola Sturgeon'

In an exclusive interview, Ed Balls says he won't negotiate his first Budget with SNP MPs - even if Labour need their votes to secure its passage
VE Day 70th anniversary: How ordinary Britons celebrated the end of war in Europe

How ordinary Britons celebrated VE Day

Our perception of VE Day usually involves crowds of giddy Britons casting off the shackles of war with gay abandon. The truth was more nuanced
They came in with William Caxton's printing press, but typefaces still matter in the digital age

Typefaces still matter in the digital age

A new typeface once took years to create, now thousands are available at the click of a drop-down menu. So why do most of us still rely on the old classics, asks Meg Carter?
Discovery of 'missing link' between the two main life-forms on Earth could explain evolution of animals, say scientists

'Missing link' between Earth's two life-forms found

New microbial species tells us something about our dark past, say scientists
The Pan Am Experience is a 'flight' back to the 1970s that never takes off - at least, not literally

Pan Am Experience: A 'flight' back to the 70s

Tim Walker checks in and checks out a four-hour journey with a difference
Humans aren't alone in indulging in politics - it's everywhere in the animal world

Humans aren't alone in indulging in politics

Voting, mutual back-scratching, coups and charismatic leaders - it's everywhere in the animal world
Crisp sales are in decline - but this tasty trivia might tempt back the turncoats

Crisp sales are in decline

As a nation we're filling up on popcorn and pitta chips and forsaking their potato-based predecessors
Ronald McDonald the muse? Why Banksy, Ron English and Keith Coventry are lovin' Maccy D's

Ronald McDonald the muse

A new wave of artists is taking inspiration from the fast food chain
13 best picnic blankets

13 best picnic blankets

Dine al fresco without the grass stains and damp bottoms with something from our pick of picnic rugs
Barcelona 3 Bayern Munich 0 player ratings: Lionel Messi scores twice - but does he score highest in our ratings?

Barcelona vs Bayern Munich player ratings

Lionel Messi scores twice - but does he score highest in our ratings?
Martin Guptill: Explosive New Zealand batsman who sets the range for Kiwis' big guns

Explosive batsman who sets the range for Kiwis' big guns

Martin Guptill has smashed early runs for Derbyshire and tells Richard Edwards to expect more from the 'freakish' Brendon McCullum and his buoyant team during their tour of England
General Election 2015: Ed Miliband's unlikely journey from hapless geek to heart-throb

Miliband's unlikely journey from hapless geek to heart-throb

He was meant to be Labour's biggest handicap - but has become almost an asset
General Election 2015: A guide to the smaller parties, from the the National Health Action Party to the Church of the Militant Elvis Party

On the margins

From Militant Elvis to Women's Equality: a guide to the underdogs standing in the election
Amr Darrag: Ex-Muslim Brotherhood minister in exile still believes Egypt's military regime can be replaced with 'moderate' Islamic rule

'This is the battle of young Egypt for the future of our country'

Ex-Muslim Brotherhood minister Amr Darrag still believes the opposition can rid Egypt of its military regime and replace it with 'moderate' Islamic rule, he tells Robert Fisk
Why patients must rely less on doctors: Improving our own health is the 'blockbuster drug of the century'

Why patients must rely less on doctors

Improving our own health is the 'blockbuster drug of the century'