Vodafone could take VAT case to court

Tax lawyers working for Vodafone, the world's biggest mobile phone operator, are considering going to court to settle a dispute over alleged unpaid VAT.

The company is arguing with representatives from Customs & Excise over VAT payments that Vodafone said yesterday totalled about £15m. This is equal to 2 per cent of its annual VAT bill.

It said that it had been trying to meet with Customs & Excise for six months to try to discuss its VAT avoidance scheme which is legal and was adopted by the company after the Chancellor Gordon Brown changed the VAT rules in last year's Budget.

The new rules had the effect of adding VAT payments to new parts of the manufacturing chain for pre-paid mobile phone cards. These also included landing the company's thousands of distributors with an extra VAT bill.

Vodafone set up a scheme involving a company in Ireland which supplied distributors in the UK with the phonecards and is able to avoid paying VAT.

Customs & Excise officials met Vodafone at its offices on Wednesday to discuss the disputed payments. Under Vodafone's avoidance scheme, the mobile operator effectively agreed to shoulder the distributors' potential VAT liabilities which arose under the new VAT rules introduced last year.

If Customs & Excise demands that Vodafone pays the £15m, the company is considering taking its case to the UK's VAT Tribunal Court, a court of law with a legally qualified chairman who often sits to hear cases with two lay people. It said it had yet to decide whether to go to court of simply pay the tax.

Moves by Customs & Excise to try to retrieve unpaid VAT are seen as part of Mr Brown's get-tough policy on tax avoidance schemes which the Government sees as abusing the tax system, although they are not illegal. Vodafone said that it had used the scheme for six months.