Vodafone set to avoid billions in tax over huge deal to exit US

Mobile phone giant Vodafone is expected to avoid paying billions of pounds in tax on its mammoth deal to exit the US.
A Vodafone store.A Vodafone store.
A Vodafone store.

In a move likely to stoke controversy over corporate taxation, the group is expected to cut its tax bill on the £84bn sale of its 45 per cent 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.

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The sale is expected to be unveiled tomorrow 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 £64.4bn for the stake, although Vodafone is said to be pressing for as much as £84bn.

Vodafone has a market worth of just under £100bn, which means the bulk of its value is locked up in Verizon, in which it has no day-to-day control.

HM Revenue & Customs is 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.

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Vodafone has 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.

A minimal tax charge will be a boost for investors and pension funds. 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).

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