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Friday, February 17, 2017

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Monday, January 30, 2017

Vodafone’s Tax Credit of £17.4 billion

Collecting tax is about political will. The current British Government underlined its distaste for collecting tax from big business in 2012 when it altered the way multinationals’ tax is calculated. This is what George Osborne, Chancellor of the Exchequer, called being more ‘competitive’ and was the catalyst for Pfizer’s recent attempt to take over AstraZeneca.

Osborne’s changes to the tax laws lower companies’ potential tax liability in two ways:

(1.) The UK corporation tax rate is now considerably lower than many countries, including the US. (Pfizer calculated that by taking over AstraZeneca and moving their head office to the UK, they would save around £800 million a year.)

It is rumoured that many US multinationals are now looking at the advantages and disadvantages of moving their head office to the UK. Naturally, the US authorities are most unhappy at the prospect of these companies denuding the US Treasury of vast amounts of money. Are they going to undercut the UK rate? Or are they going to introduce legislation to stop US companies putting a brass plate on a door in London? Whichever way the US authorities act, it is highly likely that Osborne’s wheeze at fiddling tax rates will end up with less corporation tax being collected.

(2.) Where a company has losses, and these are placed in an established tax haven such as Luxembourg (one of the original six Common Market countries!) those losses can be offset against profits in the UK. Before Osborne’s intervention, tax had to be paid on the profits made from sales in the UK. Now they can legally offset these profits. An example of this is Vodafone, who has parked losses of around £70 billion in Luxembourg. These are not real losses, but paper ones, from the acquisition of various companies, including the German engineering & telecommunications company, Mannesmann, in 2000. However, under Luxembourg’s tax system, this paper loss miraculously produces a tax ‘credit’ of £17.4 billion!

Vodafone doesn’t even trade in Luxembourg. So it needs to move profits from other countries, and thanks to an obliging Osborne, what better place to move them from, than the UK? Vodafone has dodged around £500 million so far, and at this rate will pay no corporation tax in the UK for another 20 years or more!!

It is certain that numerous other multinationals are talking with their lawyers and accountants about ways to exploit Osborne’s generosity with taxpayers’ money. Politically, it may suit the Googles and Amazons to stop selling from Luxembourg or Ireland, and switch to actually selling in Britain for the first time, knowing they will still pay next to no tax.

Why is George Osborne doing this? He’s gambling that his ‘competitive’ tax rate will bring in a larger tax-take than by keeping corporation tax at the higher rate. But there are pitfalls he doesn’t seem to have considered – for instance, why shouldn’t other countries, especially the US, then retaliate by undercutting the British rate, in a ‘race to the bottom’? In that event, the losers will be ordinary citizens of all the countries who’ll have to live in a permanent state of austerity.

Comments
6 Responses to “Vodafone’s Tax Credit of £17.4 billion”
  1. Janos Abel says:

    This is treason and parliament is the correct target for some kind of class action.

    What is People’s Assembly doing about it? It seems that the best they intend to do—if they aware of this at all—is a London wide assembly about all and sundry issues.

  2. Dave Dewhurst says:

    The ‘race to the bottom’ – ‘regulatory arbitrage’ is the greatest driver of global and individual inequality. While nation states (or those who have grabbed their levers of power) compete in a low-tax, low employment rights, low environmental safeguards ‘beauty content’ in front of big capital individual and national autonomy is lost. This is why UKIP’s ‘UK alone’ programme is an illusion. If the international 99% does not stand up collectively to big capital they will just be dictated to. This is why we need to replace their minions, like Osborne, with representatives who identify with the interests of the majority – and why we need internationalism but not as we know it from TTIP, the WTO and the majority of the EU, but from the bottom up.

  3. Frankie says:

    Point (1) contains no evidence as to how UK tax collection would be lower. On point (2) you cannot tax a country into prosperity. Finally, NHS healthcare will always be rationed for the people no matter how much money you through at it. Private healthcare does not ration its services.

    • Mike Gold says:

      Frankie

      Apologies for taking so long to reply,

      The theory is that by lowering corporation tax more companies will base themselves in the UK. However, the US will retaliate and there will be a race-to-the-bottom and everyone will lose except the corporations.

      I believe you can tax a country into prosperity because this is producing a more egalitarian society. Prosperity cannot be measured just by material goodies.

      Lastly, private healthcare does ration its services, by money!

      And finally, the NHS has just been ranked No 1 health service in the west with USA bottom and we spend less money per head than all the other countries. Privatisation will give us an overpriced crap service like the US

      Thanks for commenting

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  1. […] [Vodafone] has parked losses of around £70 billion in Luxembourg. These are not real losses, but paper ones, from the acquisition of various companies, including the German engineering and telecommunications company, Mannesmann, in 2000. However, under Luxembourg’s tax system, this paper loss miraculously produces a tax ‘credit’ of £17.4 billion! Vodafone’s Tax Credit of £17.4 billion […]



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