It has been claimed that a deal was agreed with HMRC “to let Vodafone off a £6bn tax bill”. In what was described as an 'unbelievable cave-in', HMRC allegedly allowed the phone giant to avoid paying vast amounts of tax on profits racked up by a subsidiary based in a tax haven.
The agreement between HMRC and Vodafone came after negotiations-between revenue officers and John Connors, Vodafone's head of tax. Until 2007, Mr Connors was an official at HMRC.
The saga began a decade ago when Vodafone bought German engineering firm Mannesmann for 180bn euros.
Wanting to route the purchase through an offshore company which allowed it to avoid paying UK taxes, it set up a subsidiary in Luxemburg where profits would be taxed at less than 1%. But it was ruled that the deal broke anti-tax avoidance rules.
Nevertheless, HMRC took the Vodafone case away from its team of lawyers and gave it to another negotiating team, which said the phone company could get away with paying a lump sum of £800m and a further £450m over five years.
HMRC also agreed that the firm would no longer have to pay tax on its Luxembourg subsidiary's profits. The deal is understood to include some other tax avoidance methods by Vodafone.
One former HMRC chief told Private Eye magazine the deal was an 'unbelievable cave-in'.”
Vodafone and HM Revenue & Customs both describe the allegations as an ‘urban myth’.
This is Money, 16 September 2010
- Image: Andrew Aitchison