It said Luxembourg tax authorities issued a certificate of tax residency that confirms Vodafone Investments Luxembourg Sarl (VIL) is resident for tax purposes in Luxembourg. The UK government claimed that VIL’s profits should be subject to corporation tax in Britain under Controlled Foreign Companies, CFC, legislation introduced in 1988.
The judge ruled that it was illegal to impose UK corporation tax rates on a Vodafone subsidiary in Luxembourg, where taxes are lower. The subsidiary was formed by the acquisition of German company Mannesmann in March 2000.
In 2006, the European Court of Justice ruled that the CFC rules were restrictive, and could only be justified when the subsidiaries were set up artificially to have a tax advantage.
HMRC said: We intend to appeal this decision, and the Government will continue to defend its ability to enforce the CFC rules, which are designed to counter tax avoidance through artificial shifting of profits to offshore subsidiaries.
