Vodafone has won the battle with UK government on payment of extra corporation tax on its Luxembourg-based subsidiary. Mr. Justice Edward Evans-Lumbe ruling in High Court saved the mobile phone group a whopping 2.2 billion pounds. The honourable court allowed UK government to appeal against the ruling.

The judges ruled not to hold Vodafone liable for tax on the profits of its wholly owned subsidiary, Vodafone Investments Luxembourg Sarl (VIL). Vodafone bought German company Mannesmann AG in March 2000. VIL is the intermediate holding company of Mannesmann in addition to other European telecommunications companies in which Vodafone has interests.

VIL is confirmed as the resident of Luxembourg for tax purposes as per the certificate of tax residency issued by the Luxembourg tax authorities. But the UK government, citing the Controlled Foreign Companies (CFC) legislation of 1998, claimed that VIL’s profits will have to be subjected to corporation tax in Britain.
Way back in 2006, the European Court of Justice had ruled that CFC rules could only be applicable in cases where subsidiaries were set up solely to get the tax advantage.

Vodafone spokesman expressed pleasure over the ruling in its favour adding that Honourable Court has granted permission to HMRC (Her Majesty’s Revenue and Customs) to appeal against it.

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