VODAFONE could reap a £1 billion tax windfall if the mobile phone giant wins its battle for control of Cable & Wireless Worldwide (CWW). The bonanza could allow Vodafone, one of Britain’s most valuable companies, to escape paying domestic corporation tax until later in the decade.
However, such a tax holiday could also reawaken the controversy over Vodafone’s dealings with the taxman, which have come under intense scrutiny over recent years. In 2010, Vodafone came to a £1.2 billion settlement with the taxman after a long-running dispute. The company was then targeted by protesters from UK Uncut, amid allegations that it owed another £6 billion. It has repeatedly denied charges that it secured a “sweetheart” deal.
In Britain alone, CWW, a telecoms firm that was once a member of the FTSE 100 but has struggled in recent years, is sitting on £5.2 billion of capital losses. Analysts believe Vodafone could write off about £1 billion of this against taxes — enough for a long tax holiday, and almost cover the cost of buying CWW. After a 4% drop in its share price to 33.49p on Friday, CWW has a market value of £920m. Vodafone paid £141m of tax on its domestic earnings last year.
The losses built up by CWW could eliminate liabilities for years to come. However, some experts believe the company will not be able to offset any future tax liabilities against CWW’s losses following a clampdown by the taxman.
Vodafone declined to comment. CWW is also being pursued by India’s Tata Communications.