Vodafone to avoid tax on US deal
on 01/09/2013 11:05:43
In a move likely to stoke controversy over corporate taxation, the group is expected to cut its tax bill on the US $130bn sale of its 45% stake in Verizon Wireless to as little as £5bn from a potential £40bn charge.
Vodafone is planning to complete the deal through its Luxembourg subsidiaries and other offshore companies, which will see the tax liability fall mainly on Verizon in the US, according to The Sunday Times.
The sale is expected to be unveiled on Tuesday in what will be one of the largest corporate transactions of all time.
It is thought that Verizon - America's biggest mobile phone network - wants to pay around US $100bn (£64.4bn) for the stake, although Vodafone is said to be pressing for as much as US $130bn, which compares with AOL's record US $164bn (£105bn) takeover of Time Warner in 2001.
Vodafone has a market worth of just under £100 billion, which means the bulk of its value is locked up Verizon, in which it has no day-to-day control.
HM Revenue & Customs (HMRC) is understood to be watching the deal closely, although it is also thought Vodafone may be able to use capital gains tax exemptions introduced in 2002 to return cash from large disposals to the UK without paying tax.
Newbury-based Vodafone has already fought with HMRC over tax in the past for using offshore companies to reduce its liabilities and agreed a deal with authorities in 2010 following a long legal battle.
But a minimal tax charge will be a boost for investors and pension funds with Vodafone shares, as they will receive higher returns from the deal.
Vodafone is predicted to pay out a special dividend to shareholders of up to £40bn.
According to financial services group Hargreaves Lansdown, an investor holding £5,000 of Vodafone shares might receive £2,000, with no further tax to pay as long as it is held in a pension fund or individual savings account (ISA).
Investors without direct shareholdings are likely to benefit through their pensions, with many funds holding up to 10% in Vodafone shares.
Vodafone's shares have leapt 8% over the past week thanks to the deal.