Vodafone’s £84bn sale of its stake in a US mobile network may not be the biggest deal in history – in fact, the company’s takeover of Germany’s Mannesmann in 2000 is – but the company offloading its 45 per cent share of Verizon Wireless is still a hefty transaction. It also threatens to provoke another row about the looking-glass world of corporate taxation.
The issue shot up the agenda thanks to revelations about the service companies, royalty transfers and intra-group debts that leave big-name multinationals legally paying minimal UK taxes. The likes of Starbucks, Amazon and Google have all come under scrutiny.
This time, however, the situation is even trickier; this time the company is British. Vodafone’s mammoth deal might be expected to generate sizeable capital gains taxes for the Exchequer. Yet it appears that the company will pay only a paltry $5bn charge in the US, and nothing in Britain at all. No wonder that Margaret Hodge, the vociferous chair of the Public Accounts Committee, is calling for a review of the relevant rules. She is right to do so.
The favoured explanation for Vodafone’s tax-lite deal is so-called “substantial shareholder exemption” allowing a company selling a chunk of another’s shares to avoid CGT – a rule that was introduced, in 2002, to ensure that Britain did not lose out to competitors such as Luxembourg and Switzerland. All of which only illuminates, once again, the race to the bottom that global corporate taxation has become.
There is some good news, though. With a considerable portion of the sale’s proceeds to be passed on to shareholders, many of them here, Britain is set for a windfall running to tens of billions of pounds – enough to give a tangible boost to the economy.