The world’s largest mobile operator by revenues has won a landmark victory, after the UK High Court ruled that it will not have to pay corporation tax on its Luxembourg-based subsidiary.

The tax battle was a hang over from Vodafone’s 2000 acquisition of Germany’s Mannesmann. Vodafone Investments Luxembourg Sarl (VIL) was set up as an interim holding vehicle for the interests of Mannesmann as well as other acquisitions Vodafone has made since.

As VIL is based in Luxembourg, the UK’s High Court judge ruled that it would be unlawful for Revenue & Customs to pursue VIL for corporation tax under Controlled Foreign Companies (CFC) legislation introduced into Britain in 1988.

The judge also struck a blow against CFC legislation, arguing that it restrictive and can only be justified where subsidiaries are set up artificially to gain a tax advantage.

In his judgement, Edward Evans-Lombe also said that the UK needs to address these deficiencies in the legislation.

Vodafone had set aside £2.2bn as a provision for tax payments if it lost the case, although Revenue & Customs still has the option to appeal the ruling.

However, these latest developments are likely to have been watched closely by other companies in a similar position, and could start a flood of similar claims from other multinationals with overseas subsidiaries.