How chief taxman's 'cave-in' let Vodaphone off £6bn bill
Controversial tax boss Dave Hartnett agreed a deal to let Vodafone off a £6billion tax bill, it emerged yesterday.
In what was described as an ‘unbelievable cave-in’, the HMRC’s permanent secretary for tax allowed the phone giant to avoid paying vast amounts of tax on profits racked up by a subsidiary based in a tax haven.
The disclosure comes after it emerged that Her Majesty’s Revenue and Customs had undercharged 1.4million Britons a total of £2billion in tax and would be claiming it back. Last week Mr Hartnett was forced by Chancellor George Osborne to issue a grovelling apology.
The agreement between HMRC and Vodafone came after negotiations between revenue officers and John Connors, Vodafone’s head of tax. Until 2007, Mr Connors was a senior official at HMRC, where he worked closely with Mr Hartnett.
The saga began a decade ago when Vodafone bought German engineering firm Mannesmann for 180billion euros.
Wanting to route the purchase through an offshore company to avoid paying UK taxes, it set up a subsidiary in Luxemburg where profits would be taxed at less than 1 per cent. But it was ruled that the deal broke anti-tax avoidance rules.
Nevertheless, Mr Hartnett took the Vodafone case away from his team of lawyers and gave it to another negotiating team, which said the phone company could get away with paying a lump sum of £800,000 and a further £450,000 over five years.
HMRC also agreed that the firm would no longer have to pay tax on its Luxembourg subsidiary’s profits. The deal is understood to include some other tax avoidance ruses by Vodafone.
One former HMRC chief told Private Eye magazine the deal was an ‘unbelievable cave-in’.
An HMRC spokesman said: ‘Our legal obligation to maintain customer confidentiality means we are unable to offer comment on the tax affairs of named individuals or organisations.’
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