Vodafone to pay £1.25 billion to settle UK tax-evasion lawsuit

Vodafone plc, the world's biggest mobile service provider by revenue, today agreed to pay £1.25 billion ($1.93 billion) in the UK to settle a tax-evasion lawsuit involving its European subsidiaries outside the UK.

Vodafone has settled all outstanding issues dating back to 2001 with the Controlled Foreign Companies (CFC) in a deal, where no more tax liabilities will arise in the near future under current legislation.

CFC (controlled foreign companies) is a tax legislation that is designed to stop UK-based multinationals avoiding tax by diverting income to their subsidiaries in low-tax countries. Countries with CFC rules include the UK, the US, Germany and Japan.

Earlier Vodafone had disputed the government's claim that it owed £2.2 billion in taxes for creating its Luxembourg subsidiary to facilitate the hostile and controversial takeover of German mobile operator Mannesman in 2000.

It had lost the lawsuit and filed an appeal against the verdict, which also ruled in favour of UK tax authorities.

The company also faces a case with the Indian tax authorities, which asked Vodafone to pay Rs12,000 crore related to taxes over its acquisition of Hutchinson's stake in Hutch Essar for $11.2-billion in 2007 (See: I-T serves notice on Vodafone for failure to deduct tax in Hutchison deal), a buyout that forced the mobile operator recently to write-off a staggering Rs15,000 crore as it faces severe pricing wars and fierce competition in the Indian telecom market. (See: Vodafone posts increased profits at £8.65 billion) 

Under the CFC deal, Newbury, England-based Vodafone will pay £800 million this year and the remaining to be paid over the following five years.