The title of this post may have even my most regular of readers thinking I have lost the plot. No, I haven’t. It is actually a very funny joke, as will become apparent.
Vodafone are selling their stake in Verizon Wireless for an estimated $130bn, or £84bn, and they will be getting away without paying any UK tax!
Neoliberals will say that this exactly what the law intends, but that has never stopped me calling something tax avoidance before, and it shan’t start stopping me now. Vodafone are avoiding tax by using two clever accounting tricks.
The first is that the vendor of the shares is Vodafone’s Dutch holding company, so the transaction isn’t taking place in the UK.
The second is that even if the transaction took place in the UK, it would not be taxable due to a loophole know as the Substantial Shareholding Exemption (SSE). George Osborne tricked Gordon Brown into introducing this loophole in 2002.
Now, the SSE would not stand up to my GRAPIST because it is clear that Parliament wasn’t paying attention when it voted this into law so it definitely wouldn’t survive the quadruple questionableness test. But unfortunately, we do not have a GRAPIST.
Instead, we have to close this SSE loophole because it has no purpose. Sure, some argue that where the shareholding is not held as an investment it prevents corporation tax being charged on gains of profits which have already been subject to corporation tax, but that’s just sophistry. I have never understood the objection to double, triple, or even quadruple taxation.
I understand the objection to quintuple taxation, but I reject it entirely.
Once we have got rid of SSE, we can then ignore the existence of the Dutch holding company under the Expectation Principle and demand that all tax is paid in the UK. The Expectation Principle is the principle where we look at the global profits of a UK group and demand that it is all subject to UK tax. My tax gap estimates use the Expectation Principle, and those estimates have been widely cited without any verification or review whatsoever.
So, you see, my argument is courageous and moral, in demanding that Vodafone should pay tax on “everything everywhere”.*
Being a tax expert, I estimate that the amount of tax lost by the country because of this act of avoidance is probably about £25.2bn being the rate of UK corporation tax applicable six years ago applied to the ultimate proceeds of the sale of shares ignoring all the costs in acquiring those shares.
*For those that are not as tech savvy as I am and still do not get my rather clever joke, the mobile telephony provider EE’s name stands for Everything Everywhere. If you do not get it now, you must be neoliberal troll.