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HMRC broke its own rules writing off Vodafone tax

The UK tax office broke its own rules in writing off billions of tax owed by mobile giant Vodafone, according to an investigation by Private Eye magazine.

In September, HMRC settled a decade-long fight with the company by writing off an estimated £5 billion in tax, sparking a wave of sit-down protests at the company's shops.

The case dates back to 1999, when Vodafone landed itself with a huge bill after breaking anti-tax avoidance rules while attempting to route the €180 billion purchase of German engineering firm Mannesmann via Luxembourg.

It is reckoned to be the largest dispute over tax avoidance in the Revenue's history.

HMRC has publicly pledged that in large tax avoidance cases, when it had a reasonable legal argument, it would never settle for less than the full amount of tax.

And yet earlier this year, HMRC permanent secretary Dave Hartnett dismissed HMRC's lawyers from the case and brought in tax consultant David Cruickshank of Deloitte to broker an agreement with Vodafone.

Under its terms, Vodafone's tax liability - put by Private Eye at £6 billion - was slashed to a mere £800 million, with a further £450 million to be paid over the next five years.

According to the Eye, Vodafone's own accounts reveal that by 2006, the company had already set aside £2.1 billion to cover tax and interest - a figure which, after a further four years, could have swelled by further billions in lost revenue.

Asked why tax authorities had failed to pursue billions that it appears even Vodafone knew it owed, HMRC chief executive Dame Lesley Strathie this week told parliament's Public Accounts Committee: "I am satisfied as the accounting officer that the proper process took place here."

But in further questioning, Strathie appeared to know little about the deal of which she so heartily approved - even down to the fact that Cruickshank had been brought in to negotiate.

An even greater revelation awaited MPs when they questioned Strathie concerning a "forward agreement" that HMRC had concluded with Vodafone, under which profits that the company had tucked away in Luxembourg won't be taxed in the future, either.

When asked about the legality of such an agreement, the head of the UK's tax authorities provided a startling response: "I'm sorry, I'm not a tax specialist."

You can sign a petition pressing the UK government to investigate HMRC's deal with Vodafone here.