The Chancellor of the Exchequer this week, announced a marked increase and further extension of austerity measures designed to reduce public spending so that on-going budget deficits will be eliminated. Very many of those to suffer most will be the lower paid, unemployed, sick, disabled and elderly. But what of the multinationals and the richer members of society. Not a lot from the top earners. The troughs are open. The under noted report provides an explanation of difficulties, pertaining to an on-going disgraceful failure to recover tax due from Vodaphone, (just one of the multinationals). Introduction of a tax regime ensuring timeous recovery of tax due would eliminate any need to punish the poor for the greed and incompetence of the rich.
September 2011 – Vodaphone – Dave Hartnett and Tax Avoidance Schemes.
Appearing before the, Treasury Select Committee, investigating tax avoidance schemes operated, (to the detriment of the UK) by multinationals, Dave Hartnett, permanent secretary for tax at HM Revenue & Customs (HMRC) defended a, “sweetheart” deal he brokered with Vodaphone claiming he had achieved the best recovery of tax possible from the company.
In opening exchanges he questioned claims a figure of £6billion tax had been due, but avoided since Vodaphone’s company registration was in Luxembourg and this provided the means allowing operation of a legal tax avoidance scheme. The £6billion figure was very conservative, (some experts put it nearer to £15billion) had been obtained from an examination of the Luxembourg company’s accounts and sources within HMRC.
With at least several billions of pounds in tax at stake covering a decade of tax avoidance, HMRC’s lawyers and specialists were confident of victory, yet Hartnett told the committee: “There were plenty of tax QCs in the UK lined up telling us and the media that we weren’t going to get a penny through litigation.” Strangely, HMRC could not unearth a single such comment to the media.
In fact by the middle of last year, most tax lawyers understood that Vodafone was on shaky ground with its argument that UK laws designed to ensnare the scheme breached European law. Britain’s court of appeal ruled in 2009 that the laws were compatible with EU law, while the European court had judged that “artificial” arrangements could be taxed and companies don’t come much more artificial than Vodafone’s Luxembourg brass plate operation, betrayed by its employment of two men and a dog until well into 2008.
This was not enough for even one Luxembourgeois and his chien to run a company – plus its Swiss branch – that held in excess of £125billion in financial assets and subsidiary companies including the German engineering giant at the heart of the scheme, Mannesman. Few doubt the courts would have found this “artificial”, as even Vodafone appeared to acknowledge by belatedly deploying a handful more bean counters to Luxembourg.
Hartnett admitted that the case had been “escalated” away from inspectors, (who were specialists in the subject) first to a director and her deputy then, when their discussions “stalled” Hartnett stepped in personally and “negotiated a settlement with the chief financial officer of Vodafone”, aka Andy Halford. Coincidentally, of all Britain’s thousands of tax advisers, the company brought in Deloitte’s David Cruickshank, who just happened to have a long track record of doing cosy deals with Hartnett.
Hartnett with only a limited grasp of the relevant tax laws consulted nobody who understood the law properly, including the relevant lawyers, on the chances of legal success and thus what a suitable “deal” might be. Vodafone got what it wanted (including time to pay on a chunk of the bill, despite sitting on its own multi-billion pound cash pile) and the taxpayer was short-changed by a few billion. “Absurd” indeed.
And what a hefty deal it was. Vodafone’s own estimate of its bill, (£2.1billion) had been made as early as March 2006, more than four years before the July 2010 settlement of (£1.25billion). Between those dates, billions of pounds more profits were diverted offshore and interest continued to rack up on the old liabilities. Almost certainly unlawfully, HMRC also promised not to touch the scheme in future and other unrelated tax disputes were dropped as part of the deal.
Tuesday 28 May 2013 Dave Hartnett Ex Head of Tax at HM Revenue & Customs Takes up a Post With Deloitte’s
Dave Hartnett, until last summer the UK’s top tax official, is taking up a job with tax consultancy Deloitte. Does this matter? Yes, it does; both in its specifics, and the light it casts on the relationship between our governing elite and corporate interests.
Mr Hartnett left Her Majesty’s Revenue and Customs amid some controversy. It is not every civil servant who is accused of being a liar, as he was by Margaret Hodge. The chair of the public accounts committee accused him of lying over his claim that he did not deal with the tax affairs of Goldman Sachs. He had in fact struck a “sweetheart deal” with the bankers, letting them off a £10million interest bill. That revelation sat alongside other tittle-tattle such as his standing as the most wined and dined official in Whitehall, eating 10 meals with KPMG alone over three years. One doesn’t need to buy the accusations of a meals-for-deals strategy to see in all this a too – cosy relationship between the regulator and the businesses that he regulated. Even other tax professionals went along with that, especially outside the Big Four. Such criticism was justified by Mr Hartnett and his pushing of “enhanced relationships” with big companies. The commissioner might initially have intended the concept to denote more open dealing with big taxpayers and less of the old cat – and – mousery; but it ended up as a variant of the now-familiar light-touch supervision.
The great disappointment is that Mr Hartnett set out to be a much tougher taxman. It is hard to think of any senior official with as in-depth a knowledge of tax law, or with as great renown as a bruiser. Mr Hartnett was a Revenue lifer, yet the hard man ended his career by becoming a soft touch. His appointments to Deloitte and HSBC won’t alter that reputation. Mr Hartnett will help Deloitte to advise overseas governments on how to implement “effective tax regimes”, which seems rather like dispatching the top brass of Stella Artois to advise on alcohol abuse. The contrast between his soft landing and the brutal treatment administered to Osita Mba, the whistle blower who exposed the Goldman’s deal, is stark and troubling.
Provision must be made for top public servants to move on to other jobs, but the current system is not robust enough at detecting possible conflicts of interest. In its emphasis on avoiding personal lobbying of ministers and advisers by former colleagues, the advisory committee on business appointments pays too little attention to how they might otherwise massage relations between a company and Whitehall. It is thus worryingly narrow in how it interprets possible overlaps of corporate interest. The system must be recast to adopt a precautionary principle in looking for possible dangers of abusing insider expertise.
23 March 2013 David Cruickshank, chairman of Deloitte Interviewed
Britain’s biggest accountants have been under attack in recent weeks for their alleged involvement in tax-dodging schemes and last week the Chancellor said he would name and shame accountants and others involved in aggressive tax avoidance. But David Cruickshank, chairman of Deloitte, one of the Big Four firms, insists he has nothing to fear from a tougher regime. ‘That [aggressive tax avoidance] is not the business we are in,’ he says. Critics, including a number of MPs, might beg to differ.
It has been a difficult period for the big accountants, which as well as facing accusations from parliamentary committees of being part of the tax avoidance industry have been blamed for failing to spot the financial shenanigans at banks and elsewhere and of having a competitive stranglehold over accounting advice to Britain’s blue-chip firms.
But it is the tax issue that has prompted the most ire. Cruickshank claims companies have actually been cleaning up their tax act. ‘Most companies are doing now what I would regard as sensible planning, sensible housekeeping in line with their business,’ he says. ‘The environment’s changed an awful lot over the past ten years.’
But Cruickshank says that private individuals have been rather more colourful. ‘On the other hand, there definitely has been quite a lot of activity in the private client market – the sort of personal tax area,’ he says. ‘There’s been a bit of a lag in that market actually, where there are still a lot more schemes than in the corporate market.’ Cruickshank doesn’t name anyone in particular but in the public mind comedian Jimmy Carr has been the most obvious recent case of celebrity tax avoidance. The comedian’s tax arrangements were the most serious recent example – though nothing to do with Deloitte. ‘I won’t comment on Jimmy Carr,’ says Cruickshank. ‘I don’t know anything about the arrangements there or what he did, but I think generally prominent individuals in public life are now taking more care.’
On his corporate clients, Cruickshank is confident they will be on the right side of the Government’s crackdown, called the general anti-abuse rule. ‘The general anti-abuse rules would catch the very extreme stuff, particularly in the personal tax area and individuals,’ he says. ‘I think that will be a deterrent, particularly for some of the more egregious personal tax planning that’s been going on. But for the vast majority of companies, what they are doing wouldn’t fall foul of the rules.’
He suspects the Chancellor’s hope, outlined in the Budget, of raising £4.6 billion through the clampdown is inevitably a ‘guess’. ‘Those estimates are always really hard,’ he says. ‘You are talking about what people will or will not do, because they think they might be challenged. It is always a best guess. And it is very hard to be precise about the numbers. ‘It could put off hundreds or thousands of people from doing what they would have done, but it is hard to measure what you can’t see.’
Friday 06 June 2014 Vodafone’s Increasing Use of the Luxembourg Tax Haven
Vodafone is increasingly using the tax haven of Luxembourg as a base to manage its global spending, in a move that will reignite the controversy about its tax practices.
The company’s annual report, which showed the mobile giant is managing spending of £8.6billion through Luxembourg, also revealed Vodafone paid no UK corporation tax for a third year in a row despite making a post-tax profit of £59.4billion, thanks to the sale of its Verizon Wireless business.
Vodafone said its Luxembourg-based subsidiary, the Vodafone Procurement Company (VPC), “centrally manages the strategic procurement of the majority of our overall spend”. VPC managed spending on areas such as software in the year to March, which “represents around 50 per cent of our spend, up from £5.5billion in the prior year” and “allows us to leverage scale and achieve better prices and terms”.
The report added: “By utilizing the VPC we also learn how to apply best practice across different spend categories. For example, by applying techniques from how we manage the software licences for our data centres under a single contract to how we buy software for our network operations, we have achieved a 30 per cent reduction in prices.”
Vodafone’s use of Luxembourg in the past has been controversial, as critics allege the company has funneled revenues through the country to avoid tax in Britain.
Part of the reason Vodafone recorded a £59.4billion profit in the year to March was that it was able to benefit from historic tax losses of £17.4 billion in Luxembourg, despite limited operations there. Vodafone has previously said the losses relate chiefly to its acquisition of German telecom operator Mannesmann in 2000.
The FTSE 100 group has faced years of controversy over allegations of tax avoidance, in Britain but Vodafone strongly denies avoiding tax and maintains its UK operation makes slim profits in what it says is one of the toughest markets in Europe. “We are committed to acting with integrity in all tax matters,” it has said.
The annual report explained that it paid no British corporation tax as UK profits were again, “more than offset” by continuing payments to the Government towards the £6.8bn cost of its 3G and 4G spectrum.
Those close to Vodafone also insisted it had not shifted its purchasing from the UK to Luxembourg – rather that a lot of buying had been on a country-by-country basis previously and was now being centralised. The company added that the increase in spending to £8.20billion was partly because it has upped investment in new masts and other infrastructure.
Chief executive Vittorio Colao’s pay fell 20 per cent to £8.9m after Vodafone missed profit targets in Europe. But he will have had a huge dividend windfall from the Verizon Wireless sale in America.
Vodafone became the biggest dividend payer in the FTSE 100 this year as the Verizon deal led to a record-breaking £50billion return to shareholders. The sale was structured so it virtually wiped out any tax liability.
Tuesday 30 September 2014 Chancellor of the Exchequer Promises Clampdown on Corporate Tax Avoidance
Osborne announced he was going to tackle technology companies such as Apple and Google, which have been accused of going to extraordinary lengths to offshore profits to avoid corporation tax. Apple’s tax deals will come under further scrutiny this week amid a threat that the European Union will impose a multi – billion pound fine this week for its decades-long deals with the Irish government. Tory officials said detailed measures would be announced in the autumn statement, but hundreds of millions of pounds would be saved from the multinational clampdown on corporate tax avoidance
We seem to have been here before.