Vodafone courts new tax row with transfer to Luxembourg haven

The mobile giant is managing spending of €10.2bn (£8.6bn) through Luxembourg (Getty Images)

Vodafone is increasingly using the tax haven of Luxembourg as a base to manage its global spending, in a move that will reignite the controversy about its tax practices.

The company’s annual report, which showed the mobile giant is managing spending of €10.2bn (£8.6bn) through Luxembourg, also revealed Vodafone paid no UK corporation tax for a third year in a row despite making a post-tax profit of £59.4bn, thanks to the sale of its Verizon Wireless business.

Vodafone said its Luxembourg-based subsidiary, the Vodafone Procurement Company (VPC), “centrally manages the strategic procurement of the majority of our overall spend”. VPC managed spending on areas such as software in the year to March, which “represents around 50 per cent of our spend, up from €6.9 billion in the prior year” and “allows us to leverage scale and achieve better prices and terms”.

The report added: “By utilising the VPC we also learn how to apply best practice across different spend categories. For example, by applying techniques from how we manage the software licences for our data centres under a single contract to how we buy software for our network operations, we have achieved a 30 per cent reduction in prices.”

Vodafone’s use of Luxembourg in the past has been controversial, as critics allege the company has funnelled revenues through the country to avoid tax in Britain.

Part of the reason Vodafone recorded a £59.4bn profit in the year to March was that it was able to benefit from historic tax losses of £17.4 billion in Luxembourg, despite limited operations there. Vodafone has previously said the losses relate chiefly to its acquisition of German telecom operator Mannesmann in 2000.

The FTSE 100 group has faced years of controversy over allegations of tax avoidance, in both Britain and India, where it has had a long-running dispute.

Campaigning group UK Uncut had already announced last month that it is planning a “national day of action” on 14 June at Vodafone stores around Britain, against what it says is “their tax-dodging activities”.

Vodafone strongly denies avoiding tax and maintains its UK operation makes slim profits in what it says is one of the toughest markets in Europe. “We are committed to acting with integrity in all tax matters,” it has said.

The annual report explained that it paid no British corporation tax as UK profits were again “more than offset” by continuing payments to the Government towards the £6.8bn cost of its 3G and 4G spectrum.

Those close to Vodafone also insisted it had not shifted its purchasing from the UK to Luxembourg - rather that a lot of buying had been on a country-by-country basis previously and was now being centralised.The company added that the increase in spending to €10.2bn was partly because it has upped investment in new masts and other infrastructure.

Chief executive Vittorio Colao’s pay fell 20 per cent to £8.9m after Vodafone missed profit targets in Europe. But he will have had a huge dividend windfall from the Verizon Wireless sale in America.

Vodafone became the biggest dividend payer in the FTSE 100 this year as the Verizon deal led to a record-breaking £50bn return to shareholders. The sale was structured so it virtually wiped out any tax liability.