LONDON: Vodafone’s direct tax contribution to the UK Treasury dropped by a fifth in the last financial year, as payments related to its 2010 settlement with the tax authorities wound down. The telecoms company paid £257m in “direct” taxes in its home market during the year, down from £320m the year before. Those taxes include business rates and other payments, but not corporation tax, after it made a pre-tax loss of £486m in the year to March. The figures were included in the company’s annual breakdown of its tax and other payments to governments in markets where it operates. It is the fifth time that Vodafone has published the report, which it compiles to counter criticism of its tax structures. The company said that globally, it paid £5.3bn in “indirect” contributions to the public purse, such as national insurance and the tax on income that it collects, and £2.2bn in “direct” taxes during the year.
Vodafone drew criticism over its 2010 settlement with the British tax authorities. The £1.2bn payment ended a long-running dispute related to the level of tax it paid on its acquisition of Mannesmann in Germany at the turn of the century. But it triggered a public outcry that the company had struck a “sweetheart deal” with the tax authorities, something it denied strenuously. In the report, Vodafone continued to stress that it was “seriously misleading to conclude that a company’s corporation tax payments represent the total of its direct tax contributions to a government”. Vodafone said it had spent £1.2bn on its UK network during the year, which also reduced its tax burden. It is still writing down its investment in spectrum for 3G services, acquired in 2000, which also lowers its tax payments.
Another bone of contention for Vodafone’s detractors in recent years is its use of its small Luxembourg operation as a base for its global purchasing and internal finance functions. The country has come into focus because of the European Commission’s investigation into Amazon’s tax affairs in Luxembourg. Vodafone stressed that its operations there were not the subject of a similar review. “Vodafone has not entered into any special agreements with the Luxembourg tax authorities and is therefore not the focus of any related European Commission investigation. We have received advance tax agreements from the authorities in order to confirm that the standard provisions of the Luxembourg tax regime apply to our facts and circumstances,” the company said. The results for the Luxembourg unit showed by far the largest profit for the whole group. In the last financial year, the unit reported revenue of £164m and a pre-tax profit of £1.4bn. Its direct tax contribution in the country was just £6m. The huge profit came largely from providing the finance for Vodafone’s Spanish business to buy Ono and for its German business to buy Kabel Deutschland. Tax on the profit was reduced by earlier losses that were in the form of writedowns in the value of acquisitions, namely Mannesmann in Germany, which was written down by £23bn in 2006.
