This week we have a slightly different tax avoidance story that has got everyone excited. Vodafone are about to realise a £84bn windfall on the sale of their 45% stake in Verizon Wireless, their US partner. Not a bad return on the £20bn invested in 1999. Our cash strapped government and specifically the House of Commons public accounts committee can’t wait to get their hands on some of the loot and ministers are already dreaming up ways of spending these unplanned revenues. However, before they all get too excited there is a suspicion that the company is going to manipulating the rules to avoid capital gains tax.
Under our tax laws Vodafone can seek a Substantial Shareholding Exemption (SSE), introduced in 2002 by Tony Blair’s Labour government. This exemption allows Vodafone to sell a “substantial” shareholding it holds in another trading company, any gain it makes it is not subject to UK corporation tax on capital gains, providing the stake has been held for 12 months or more. The exemption is automatic and doesn’t even require approval from HMRC. This tax break was designed to negate the fear that multinational companies would relocate their headquarters away from the UK into jurisdictions where international deals are non-taxable. The SSE was part of a deliberate strategy to make the UK an attractive place for big global companies. So Margaret Hodge, Chair of the public accounts committee has already said "HMRC [the UK tax authority] ought to crawl all over this deal so that we can be assured that Britain is getting a fair amount of tax from this deal". In this case she might find the law an insurmountable obstacle. But more interestingly is it Britain's money, what claim does the government have on the investments made in a global business like Vodafone?
Of the £84bn, about half our annual public sector deficit,, itt is expected that up to £60bn - £40bn could be passed back to shareholders and this money will find its way into pension funds, unit trust and other saving schemes where is will be welcome relief for those who have had the worst of the recession. Government policies that have lowered interest rates to such a degree that the real rate has been negative for five years, have imposed a great hardship for those who have to rely on hard won saving for their majority of their income. Savers certainly deserve some respite from having to bail-in the rest of the over borrowed economy. The second reason why this tax avoidance will help is that any special dividends the company decides to pay could provide a welcome boost to the UK economy by increasing the money supply and this is definitely in tune with Mark Carney’s forward guidance!
|Vodafone - winning for UK savers|