Richard Murphy on Vodafone

I see Richard Murphy is saying that Margaret Hodge should summon Vodafone to the Public Accounts Committee over their sale of their interest in Verizon Wireless. This is despite the fact that:

  1. the transaction didn’t occur in the UK, and
  2. it would be covered by the Substantial Shareholding Exemption if it had occurred in the UK

Now, for me either of those is a valid reason. I can see how some people might take issue with the first point, but it is irrelevant given the second point. There would be no tax lost in the UK given the second point alone.

So, a quick search on Richard’s website found me what I was looking for: his comments regarding Guardian Media Group’s use of the SSE:

No complicated planning was needed to produce the low tax charge on the sale of this interest: the government has since 2002 provided that Substantial Shareholdings Relief is due when an asset of this sort is sold and no tax is due. The Guardian was, therefore, being tax compliant: the company is doing what the government wants, and for which it provides a relief. It would appropriate to criticise the government for introducing a tax relief of this sort: the Guardian cannot be criticised for using it when the law required that it be applied.

It’s worth noting that Richard is consistent about criticising the relief, but it is interesting to see how he has changed his thinking from that last sentence when the company in question is Vodafone rather than the Guardian.

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About Ben Saunders

I'm a Chartered Tax Adviser and a freelance writer. This is my personal blog about, well, mainly taxation. I might put other stuff in. Who knows.
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9 Responses to Richard Murphy on Vodafone

  1. I’ve not seen Murphy directly criticising Vodafone over this: he always seems to be critical of the overall situation, and that the worldwide tax regime allows the sale to be made tax-free. Have I missed something?

    I think he’s said that the sale is being done through the Netherlands to avoid tax, which could be seen as a criticism, though he’s not (that I’ve seen) articulated why Vodafone should need to use the Netherlands to avoid a tax that wouldn’t be levied in the UK.

    So from what I’ve seen he does seem to be being fairly consistent. I’m not sure whteher I agree with him that SSE and the like are inappropriate: I can see that taxing capital gains might normally be regarded as a good thing, but then I can also see an argument that doing so would impede mergers and acquisitions and so might unduly hobble the economy, which I assume is the rationale for the SSE. As the profits would still be taxable and in theory should increase if the transaction allows the companies to run more efficiently, it seems a bit odd to discourage that transaction for a one-off tax charge. Not being an economist I tend not to have strong opinions around that sort of area, though.

  2. I agree he’s being consistent over his criticism of the SSE. I do say that above, but I probably ought to have been a bit clearer.

    Richard had cited Vodafone in his criticism of the SSE. But it’s now the fact that he thinks they should go before the PAC that I think is off.

    http://www.taxresearch.org.uk/Blog/2013/09/03/should-the-public-accounts-committee-investigate-vodafone-my-answer-is-an-emphatic-yes/

    He lists three specific areas about which Vodafone should answer:

    1 territorial taxing rights
    2 whether the SSE is appropriate
    3 how the SSE came about

    I think there are more obvious examples to ask regarding the first, and the PAC have trodden that ground to some extent already.

    But it makes no sense to be asking Vodafone to discuss the use of the SSE because they aren’t relying on it. It would make far more sense to ask the Guardian to attend because they have taken advantage of the SSE.

    As far as the third question goes, you’d be better of summoning Gordon Brown (as there was no Exchequer Secretary to the Treasury at that time).

    Whichever way you look at it, it contrasts starkly with his view on the Guardian that a company cannot be criticised for applying the law as it is required. And Margaret Hodge is certainly making critical noises of Vodafone demanding that HMRC investigate it as soon as possible.

  3. The way I read it is that he thinks the PAC should investigate the implications of the Vodafone position, which I think is separate from investigating Vodafone directly. He seems to be using Vodafone as an illustration of why the whole SSE/participation exemption/dividend exemption position should be examined.

    By analogy, you could use the Gareth Bale transfer as a trigger to look at whether the rules around football transfers, and the fees involved, are appropriate without necessarily criticising Bale, Real Madrid or Spurs.

    Although I suspect that in practice the PAC would miss the distinction and simply accuse Vodafone of acting inappropriately. Hodge seems to think that any large movement of cash should mean HMRC gets a slice of the action, regardless of the situation.

    • I agree though that there is a bit of a difference in his treatment, in that he explicitly referred to the Guardian as being compliant but he doesn’t do that for Vodafone.

      Actually, looking at his headline again he does refer to the PAC investigating Vodafone, even though the tenor of his article is that they should investigate the tax regime, so the overall impression is that although SSE was perfectly acceptable for the Guardian it is somehow questionable for Vodafone.

      I have a bad habit of not reading (or not digesting) headlines and going straight to the article 🙂 I often miss the front page of a newspaper completely, I think because I treat it like a book and open the cover to find the bits to read. Not helpful.

      • You just ruined the reply I had almost crafted…. 😉

        Other than the title though, I think what you said is a fair reflection of what he’s saying overall. But the thrust of his post bears little resemblance to his title. Which, unfortunately, will be what a lot of people focus on as the message he’s trying to get across.

  4. Sorry 🙂

    You’re right, the title is likely to be read very differently from the article.

  5. iain says:

    You might be interested in a meeting next week (10th September) in Portcullis House London. Its sponsored by a trade union who represent senior HMRC staff. Its about Tax Gap and some myths around tackling it. David Gauke ans Catherine McKinell are some of the speakers. I’m sure Vodafone will crop up!

  6. Graeme says:

    it is important to stop the public discourse over tax being taken over by idiots. Whether they are ignorant such as Hodge or allegedly educated such as Murphy should not make a difference. The tax regime is as it is worded. Full fucking stop.

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