Vodafone settles tax dispute with HMRC

British operator group Vodafone has claimed its tax policy is fully compliant with the law after it emerged the company had paid a settlement worth millions of pounds to HMRC over tax returns at an Irish subsidiary.

The operator, headquartered in London, settled its dispute with HMRC in 2009 but the payment had been previously unreported, UK newspaper The Guardian claimed this week.

The overall size of the settlement has not been disclosed but it reportedly involved Vodafone reclaiming €67m in tax from the Irish government that it should have paid in the UK. Vodafone has admitted to not paying any tax in the UK for the past two years.

In 2001, a Dublin subsidiary called VIML was set up to host centralised group functions. The operator chose Ireland for various reasons including the regulatory and tax environment in the country at that time, Vodafone said.

It began to use this subsidiary to collect royalties and brand management fees from business partners to fund the development of its brand worldwide. The royalty payments that were made were done so under domestic and international transfer pricing rules, Vodafone said in a statement.

“Notably, throughout the period covered by the settlement, the profits of VIML had been taxed by the Irish authorities at the rate of 25 per cent,” the group said in a statement.

“In accordance with the Treaty between the UK and Ireland which prevents double taxation on the same income, the Irish government credited taxes previously paid by Vodafone and these were then paid to the UK Treasury as part of the overall settlement. This was disclosed in Vodafone’s annual report and accounts.”

Vodafone Group claimed that its brand activities were no longer located in Ireland as it decided instead to consolidate the global brand and marketing function within the UK from October 2011.

Vodafone is no stranger to tax disputes. In June last year, the UK National Audit Office ruled that pursuing Vodafone through the courts ran the risk of loss, and that the UK tax authorities were best advised to settle with Vodafone for £1.25bn. The company also paid no tax in FY2012, despite generating revenues of more than £5bn in its home market and is also in talks to settle a $2.2bn tax dispute with authorities in India.

Earlier this month it was announced that Vodafone UK’s CIO Mark Dearnley will step down from his role and take on the positin of chief digital and information officer at the HM Revenue and Customs (HMRC) as of October this year.