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Vodafone’s global tax burden drops by £5bn

Mobile operator’s worldwide tax bill has fallen by 36% in the past 12 months following significant divestments

The amount of tax paid worldwide by mobile network operator Vodafone has dropped by 36% following the divestment of its US operations in the tax year ended 31 March 2015.

In a voluntarily released report, Vodafone said it had paid £14.75bn in the year ended 31 March 2014, but in the most recent tax year, this had dropped to just £9.3bn.

The figure was made up of £2.3bn in direct taxes to governments in countries where Vodafone operates, £1.3bn in direct non-taxation-based fees and levies payable to governments, and £5.7bn in indirect tax contributions to national governments.

The operator said its latest data reflected the sale of its US interests to Verizon, which cut its adjusted operating profit from £7.9bn in 2013-14 to £3.5bn in 2014-15, as well as a substantial £4.1bn tax charge arising from the Verizon transaction.

Another factor was its £19bn Project Spring network upgrade programme, the group’s largest-ever investment, the company said.

As a result, Vodafone’s adjusted group tax rate at the end of 2014-15 was 29.4%, which means it paid £3 tax for every £10 of profit it made.

“At the country level, our total contribution is broadly in line with last year in the majority of markets, with some exceptions reflecting local circumstances,” said Vodafone in its report.

“In the UK, our total direct tax contribution to the UK Exchequer in 2014-15 was £320m, slightly down from £350m in 2013-14.”

Vodafone has frequently been named, along with the likes of Amazon and Google, as an example of a major corporation that has taken steps to reduce its UK tax burden which, although legal, is held by many to be against the spirit of the law.

In 2010, Vodafone agreed a £1.25bn tax deal with the UK government that saw HM Revenue and Customs accused of letting it off billions more in taxes owed. A subsequent investigation by the National Audit Office found the settlement to be “reasonable”. The dispute dated back to 2000 and concerned taxes payable at Vodafone’s Luxembourg subsidiary.

Presence in Luxembourg

In its report, Vodafone again defended its continuing presence in Luxembourg, renowned as a legal tax haven, saying it had a meaningful presence there which played a material role in its contribution to public finances.

“Our subsidiaries in that country are not ‘brass plate’ activities,” it said. “They are substantive businesses employing around 300 people in our Luxembourg headquarters building.

“Our Luxembourg colleagues manage the financing of many of our international operating companies, providing loans on a commercial ‘arm’s-length’ basis which reflect the costs of borrowing from an external bank, in line with international best practice.”

In the UK, Vodafone said that an investment of £1.3bn in network upgrades, combined with spectrum licensing fees of over £7bn since 2000, meant its overall contribution to the country’s coffers were substantially higher than the £320m it paid in 2014-15.

“The UK is an expensive and highly competitive country in which to do business and has one of the least profitable mobile markets anywhere in the world,” it said. “Many people confuse revenues with profits.

“However, our UK profit is a small fraction of our gross UK revenues – below £50m in 2014–15, which is significantly less than the interest costs on our UK debt and less than 5% of our annual UK capital investment programme.”

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