Although mobile giant Vodafone saw its global corporation tax bill increase to £2.3bn in the last financial year, allegedly no 2011/2012 payment of UK corporation tax has been made to HMRC on Vodafone’s earnings of hundreds of millions of pounds from an estimated 19m UK customers.
The Telegraph online reported on 10 June 2012 that the company’s UK corporation tax bill dramatically dropped from £140m to nothing in the last tax year, despite an increase in their British earnings by £100m (before deductions of interest and tax).
Vodafone are alleged to have legally avoided UK payments of corporation tax by off-setting their UK tax bill against its capital expenditure; the company’s capital expenditure increased by £59m to £575m in 2011/2012.
Although Vodafone has used a perfectly legal tax avoidance loophole to reduce their UK corporation tax bill it is expected that many will be angered over the mobile giants affairs with the taxman. Vodafone has recently come under fire for making ‘sweetheart deals’ with HMRC that saw a £1.2bn settlement reached in 2010 after a decade long dispute with HM Revenue and Customs.
The Telegraph name Vodafone as a member of the ‘growing list of major multi-nationals that have a major presence in the UK but pay little or no corporation tax’, and noted that whilst reducing their tax liabilities that chief executive Vittorio Colao’s pay increased to £14m from £6.6m in the last financial year, £12m of which is alleged to have been from bonuses.
As explored by BBC Panoramas The Truth About Tax, whichaired on 14 May 2012, corporation tax avoidance schemes and tax avoidance loopholes used by major UK companies are perfectly legitimate tax deals which are often painted in a bad light by the UK media.
A lack of public education from both HMRC and the UK tabloids, television and radio news reports on the distinction between tax evasion, which is the illegal act of deliberately evading tax, and tax avoidance, which is the legal re-structuring of one’s tax affairs to reduce their tax bill, can be seen to blame for the moral panic and anger that is climaxing in today’s media; More than ever before does the discussion of tax avoidance and tax evasion seem to be in the newspapers on a daily and weekly basis.
The Bureau of Investigative Journalism and news and current affairs magazine, Private Eye, allege that the Guardian Media Group, publisher of the Guardian and the Observer newspapers, has been running a tax avoidance scheme to legally avoid paying tax.
Said to be the brains behind the scheme, Private Eye claims that Britain’s biggest accountancy firm, PriceWaterhouseCoopers (PwC) helped the Guardian Media Group to set up the tax avoidance loophole.
The finger was also pointed at PwC in BBC’s Panorama Investigation into corporation tax avoidance – The Truth About Tax – as they were reported to also have arranged lucrative Luxembourg tax deals for GlaxosmithKline, which allowed the pharmaceutical company to legitimately avoid paying an estimated £34.1m in UK corporation tax. The Guardian Media group are also reported to have used Luxembourg’s ‘complicated secret financial structures’ to avoid multi-million pound corporation tax bill in the UK.
In their defence a spokesperson from the Guardian Media Group announced that the GMG and its offshore joint venture, Top Right Group, have not paid any less corporation tax in the UK due to the group’s arrangement with Luxembourg than they would have if Top Right Group was run in the UK instead of offshore.
“The Guardian Media Group is a privately owned company incorporated in the UK and subject to UK tax law,” the GMG spokesperson added.
In what seems to be an apparent media backlash on corporate companies using legitimate tax avoidance schemes to reduce their tax liabilities in the UK, it can be predicted that more major UK company names will emerge in headlines in the near future as ‘wronging’ the taxpayer for their use of such tax avoidance schemes, although perfectly legal.
Kevin Kinsella Jnr, of KinsellaTax, said:
“Well lets see the interesting cases coming along on the back of this case and see where we are going.”
Tax Avoidance is the legal re-structuring of tax affairs to reduce your tax liability. HMRC will only look to close down a tax avoidance scheme and regain money if they deem the tax avoidance scheme to be ‘aggressive’.
If you are worried about a tax avoidance scheme that you have entered one of our trained tax investigation experts will be able to advise you of your best options.
KinsellaTax staff consists of ex-HM Inspector of Taxes and ex-HM Custom and Excise Officers fully trained in all types of HMRC tax enquiries.