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Unit 3 Micro: Vodafone and Corporation Tax

Saturday, June 08, 2013
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The political controversy over corporate tax avoidance from many of the world's biggest transnational businesses is unlikely to go away anytime soon. Google, Amazon and Starbucks and Apple have all come under intense scrutiny.




This week the headline writers focused on the annual report from Vodafone, the world's second largest mobile telecoms company, who announced UK revenues above £5 billion, an operating profit just below £300m but made no corporation tax payments at all

"Vodafone pays no UK corporation tax for second year running despite earning £5 billion in sales"

An easy headline to write but scratch beneath the surface and the reasons for a zero corporation tax liability are not difficult to find. Profits in 2012 were offset by interest payments of £300m on loans to buy 3G licence spectrum. Keep in mind that Vodafone was one of several businesses that bid spectacular amounts of money to win one of the original 3G spectrums when they came up for auction in 2000. Once bitten, twice shy - they paid substantially less this time around - approximately £800 million for new 4G spectrum in Britain.

The rapid growth of markets and industries that rely on data rich mobile networks is putting great pressure on existing infrastructure and ultimately someone has to pay for the much needed investment in extra capacity. Sensitive to criticisms of their non-payment of corporation tax, Vodafone took the unusual step of producing a chunky document outlining the tax contributions they make to the British economy. Vodafone overall made an adjusted operating profit of over £12 billion last year, and invested over £6.3 billion in capital expenditure. Around around one third of their revenue now comes from emerging markets.

In the UK Vodafone enjoys a  25% service revenue market share in the UK with over 19 million personal and business mobile customers.

Some sections from their annual report for 2012:

Business objectives

"Our objectives could not be more simple: to continue to invest in a superior network and customer experience, and to sustain high levels of cash generation with which we can reward shareholders and reinvest in the business – so maintaining that virtuous circle."

Tax responsibility

" Individuals and companies have legal obligations to pay tax; but those obligations do not extend to paying more than the amount legally required. Companies also have a legal obligation to act in the interests of their shareholders. Vodafone’s shareholders include many of the investment funds relied upon by tens of millions of individual pensioners and savers. At the same time, individuals and companies must meet their responsibilities to contribute to the funding of public services and infrastructure, without which societies cannot operate effectively. Achieving a transparent and effective balance between those obligations and responsibilities is therefore integral to operating sustainably."

Taxing profits

"In a number of Vodafone’s markets, including the UK, the cost of acquiring radio spectrum from the government, high operating costs, substantial levels of capital expenditure and sustained competitive and regulatory pressures have a significantly negative effect on the profits of our local businesses."

John Kay: Directors have a duty beyond just enriching shareholders





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