Mobile Network Comparison

It’s recently been reported that Vodafone’s bosses will be cashing in on millions when their deal with Verizon Wireless is finally completed. All of Vodafone’s top managers will receive huge windfall according to the terms of the agreement. As the most senior 250 members of the management team own over 50 million Vodafone shares and they are being valued at £1.12 each, their income is worth a total of £50 million.

Just over a month ago, we were reporting about Vodafone’s latest ruse to try and cheat its way out of paying tax in the UK. It has a ready been revealed how Vodafone is reaping revenues of over £40 billion is making billions in profits but has not paid a single penny of tax to Her Majesty’s Revenue and Customs.

It is estimated that the amount of tax that Vodafone is evading totals about £6 billion which is roughly about the same that the coalition government is slashing from welfare causes in the budget. Our previous article, detailed how Vodafone would use loopholes and offshore holding companies to reduce the amount of tax they owe from about $40 billion to only about $5 billion.

This news caused lots of controversy especially in the current environment where ordinary people are struggling to afford to pay their heating bills over the coming winter. As a result, Margaret Hodge MP called for urgent action to be taken to prevent British taxpayers losing out on money that Vodafone should be contributing to the country.

The Guardian has said that the £50 million that the corporate team will be getting out the deal will be split between about £16 million in cash plus £40 million of Verizon Wireless shares. The dividend already have enough money, chief executive Vittorio Colao or pocket another £10 million on top of the £11 million he got paid last year.

Since most of the Vodafone executives who are benefiting from this deal will never have paid any money for their shares as they usually receive them as part of incentive deals, all the income will be pure profit for them. It is reckoned that Vodafone’s sale of its stake in Verizon Communications is amongst the largest corporate transactions ever.

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Vodafone seems to be trying to cheat its way out of paying UK tax once again. Margaret Hodge, Labour MP for Barking in London and head of the public accounts committee, has called for the HMRC to urgently take action to avoid British taxpayers losing out once more. After all, Vodafone are probably the most infamous mobile operator in the country when it comes to avoiding their tax liabilities.

It was only this summer that it was revealed that Vodafone have failed to pay anything into the public purse whatsoever for the last two years. This is despite the fact that their CEO, Vittorio Colao, got a pay packet of £10 million and that their market price is rising with shareholders being given dividends totalling millions of pounds due to their £3 billion profit.

Margaret Hodge is requesting that government official take action now because it has been reported that Vodafone are in the midst of a $130 billion deal to sell its stake in US telecoms company Verizon Wireless. The board have been in talks this week brokering the deal and have been taking advice from Goldman Sachs and UBS.

The deal comprises almost 50% of the value of Verizon and is set to bring back billions to the British economy. In fact, the amounts involved are so massive they are comparible to the artificial injections that form the Bank of England’s quantitative easing programme aimed at kickstarting the UK economy.

However, by rights Vodafone should be paying about $40bn in tax on the deal although insiders have suggested that they will use loopholes to reduce their payment eight-fold to only about $5 billion. The precise con they will be using is known under British law as the “substantial shareholdings exemption” and minimises the amount of capital gains tax that the UK public would usually benefit from. Of course, any UK shareholders expecting dividends from the sale will be paying tax on their income.

It appears that Vodafone’s plan is to process the sale though an overseas holding company so it does not have to pay as much tax in Britain. And it’s because of this that Hodge is getting involved and the deal is so controversial.

What do you make of this news? Is there a gap in the law that allows Vodafone to get away with this? How do you feel about them avoiding paying their taxes on a deal this big? And is Margaret Hodge correct in urging Treasury ministers to prevent Vodafone getting away with it?

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An ongoing investigation spearheaded by the Guardian newspaper has revealed the true extent to which the UK’s mobile networks are avoiding their tax liabilities. Despite paying out billions of pounds in dividends to shareholders, the main mobile providers are managing, in some cases, to not pay any corporation tax whatsoever.

The news comes right after Justin King was attacked for doing business with serial tax avoiders Vodafone. The loophole the companies are taking advantage of is based upon tax breaks offered by the government on the purchase of new infrastructure hardware and radio spectrum such as the recent 4G auction.

Formed by the merger of Orange and T-Mobile, EE (or Everything Everywhere) is by far the country’s largest mobile operator. It will therefore come as little surprise that it’s also one of the biggest crooks when it comes to not paying tax.

This massive company is joined owned by German and French telecoms companies and has over 25 million UK customers as well as untold millions in the bank. EE aims to use up nine tenths of its cash flow paying future dividends. So far it has spent over £3 billion on paying shareholders which is a massive 40% more than the current budget for all A&E hospitals on the NHS.

Even though Chancellor George Osborne has already cut corporation tax from 24% to 20% which is the lowest of any global economy, mobile networks can claim back tax credit for a quarter of their outgoings on many items. Professor Sikka who specialises in tax accounting said the following:

“The telecoms industry shows the folly of the current corporate tax regime, which allows companies to structure their affairs in ways that add no economic value but reduce their tax bills.”

And it’s not just EE getting away with this. Three Mobile has paid less than £1 million in tax over the last three years. It is owned by Asian company Hutchison Whampoa and has erected incredibly complicated financial structures constructions in order to maximise its British tax assets so that historical losses can be used to cancel out future tax bills. This is currently perfectly legal for mobile networks but not for us if, for example, we wanted tax credits for taking out a loan or mortgage.

Vodafone is another example of a UK mobile network that has complex arrangements allowing it to avoid paying tax. For example, a series of purposely-uncompetitive loans to other related companies will allow it to save over £3 billion on the amount it recently spent on 4G spectrum.

O₂ currently pays the most tax of any of the big four networks. Its tax bill between 2009 and 2011 was well over £600 million according to its accounts. Because it owns less 3G spectrum it has less to offset against its earnings and O₂ expects to continue paying large amounts of corporation tax in the near future.

Despite this, O₂ has paid about £2.5 billion back in dividends to its owner Telefónica which is more than three and a half times its tax bill over the same timeframe.

Recent reports suggest that, MPs such as Labour’s Margaret Hodge and Parliament as a whole will aim to crack down on these practices though, the effectiveness of such actions remains to be seen. Hodge has accused the government of simply giving away taxpayers’ money.

At the moment the situation is dire – UK network operators have made almost £60 billion in revenue over the last three years with over £10 billion of that being clear profits. Despite this, some operators haven’t paid a penny in tax over the same period.

What do you make of this news? Is it fair that mobile networks can make such large sums of money but give back such a small amount in tax bills? Is anything going to happen about it or will the coalition continue to let them get away with it? What’s your take on the whole situation?

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