It has recently been reported in the national papers and on the internet that the UK’s HM Revenue & Customs (HMRC) boss Dave Hartnett allegedly let Vodafone forgo a Â£4.8bn tax bill when settling a longstanding tax dispute with the company.
In 2000, Vodafone acquired German engineering company and mobile phone operator Mannesmann. Details of this particular case are not in the public domain, but it is rumoured that the total tax bill was in the region of Â£6bn, and that Vodafone will settle for paying only Â£1.2bn.
Large companies minimising their taxes through any means possible is not the kind of news we like to hear following the Treasury’s recent widespread cuts under the coalition Government’s constant tirade of ‘We’re in this together’.
It looks like this isn’t the only isolated case for Vodafone. On Friday, The Guardian has reported that India’s tax authorities have demanded Vodafone to pay an estimated 112bn rupees (approx. Â£1.6bn) in taxes owed for its $11bn transaction (Â£7bn) acquisition of a stake in an Indian mobile phone operator, Essar group, from Hong Kong conglomerate Hutchison Whampoa in 2007. The tax authority claims on the basis that the transaction took place between two foreign companies.
Vodafone disagrees with the interpretation of the Indian tax law and a legal battle is scheduled to be heard in the supreme court on Monday.
This case could set a precedent and is being closely watched by the foreign companies which fear it will make them liable if enforcement of retrospective changes in Indian tax law is allowed.
Vodafone’s case also highlights the need for businesses to take take legal advice and carry out thorough due-diligence exercises before embarking on a business acquisition venture.