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Will Vodafone avoid giant UK tax bill in $100 billion US Verizon deal?

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By Noel Young, Correspondent

May 5, 2013 | 3 min read

It is one of the best-ever investments for a British company. Now Vodafone may get $100 billion for its stake in U.S. mobile-phone company Verizon. But the U.K. Government probably won’t get a penny , says Bloomberg.

Vodafone: $100 billion deal?

And if that is how it works out, Britain's taxpayers - already upset over companies like Google paying little or no tax here despite massive sales - will be outraged.

As the Drum reported last week, despite Google claims that its main sales effort is Dublin-based - allowing it to escape major UK taxes - almost 80 per cent of respondents in a Drum survey said they dealt with London when buying Google advertising.

As far as any Vodafone-Verizon deal is concerned, companies are typically required to pay a corporate tax rate of 23 percent on gains in the U.K.

But says Bloomberg , "While no deal or structure for a potential one has been announced, Vodafone could get away with paying nothing because of a so- called substantial shareholding exemption."

The substantial shareholding exemption lets publicly traded companies based in the U.K. avoid capital-gains taxes when selling shares in enterprises where the stake is bigger than 10 percent. Vodafone holds a 45 per cent stake in Verizon.

BP got the exemption when selling its 50 percent stake in Russian oil producer TNK-BP in March for $16.7 billion in cash and shares.

Politicians have grilled Starbucks , Google and Amazon on their taxes,said Bloomberg.

“They certainly do risk criticism,” said Ian Roxan, director of the tax programme at the London School of Economics. “Given that Vodafone has already been under the spotlight in the U.K., it certainly wouldn’t put them in a good light.”

In October 2010, London protesters blockaded a Vodafone store and called the company “tax dodgers” after a £1.25 billion settlement ended a dispute over how its business in Luxembourg reduced what it paid in U.K. taxes.

Verizon believes it can structure a deal so Vodafone would only owe about $5 billion in Britain, said Bloomberg.

Simon Gordon, a spokesman for Vodafone, and Bob Varettoni, a Verizon spokesman, declined to comment, said Bloomberg.

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