 "Vodafone's Verizon payday seen leaving UK empty handed")
Vodafone Group may reap $100 billion from its investment in US mobile-phone venture Verizon Wireless and the UK government probably won't get a penny thanks to an automatic exemption.
That price for Vodafone's 45 per cent stake, which partner Verizon Communications Inc has told analysts it would be willing to pay, means the value of Verizon Wireless has tripled since it was formed. Companies are typically required to pay a corporate tax rate of 23 per cent on gains in the UK. While no deal or structure for a potential one has been announced, Vodafone could get away with paying nothing because of the so- called substantial shareholding exemption.
A transaction that sends no money into UK coffers could alienate Newbury, England-based Vodafone's home government and consumers, tax experts and analysts say. Struggling to rein in a budget deficit that hit £120 billion ($186 billion) last financial year year, politicians have grilled Starbucks Corp, Google and Amazon.com Inc executives on their taxes.
HMRC rule
The substantial shareholding exemption lets publicly traded companies based in the UK avoid capital-gains taxes when selling shares in enterprises where the stake is bigger than 10 per cent and was held for a 12-month period in the two previous years, Her Majesty's Revenue & Customs said in an e-mail. BP Plc got the exemption when selling its 50 per cent stake in Russian oil producer TNK-BP in March for $16.7 billion in cash and 12.8 per cent of shares in acquirer OAO Rosneft.
The sale "is expected to be exempt from UK corporation tax under the provisions of the substantial shareholdings exemption," said David Nicholas, a BP spokesman.
US tax exemptions could also save Vodafone from paying "untold amounts" there, according to Robert Willens, a New York-based independent tax specialist. Verizon believes it can structure a deal so Vodafone would only owe about $5 billion in taxes there, said a person familiar with Verizon's thinking who asked not to be named because the deliberations are private.
Price discipline
Simon Gordon, a spokesman for Vodafone, and Bob Varettoni, a Verizon spokesman, declined to comment on tax strategies surrounding the Verizon Wireless stake. Sara Eguren, a spokeswoman at the Internal Revenue Service in Washington, said the agency can't comment on specific companies' issues.
Verizon executives including Chief Executive Officer Lowell McAdam met with analysts at JPMorgan Chase & Co. this week about Vodafone's stake, according to a note yesterday by Philip Cusick, a JPMorgan analyst. Verizon "expressed discipline on price" and sees "Vodafone's only other option to monetise its Verizon Wireless stake would be an IPO, which could potentially create a bigger tax liability versus the mid-single-digit billions in selling to Verizon," Cusick said.
Verizon hinted the venture may not pay a distribution to its owners this year, as its priority will be to pay down $5 billion in debt coming due by mid-2014, according to the note.
Verizon has communicated with some analysts that it believes the fair value for Vodafone's 45 per cent stake in Verizon Wireless is about $100 billion, people familiar with the matter said last week. That's lower than the $120 billion valued by some analysts.
That $100 billion pricetag implies Verizon is valuing the wireless stake at about 7.5 times earnings before interest, taxes, depreciation and amortisation, said Jennifer Fritzsche, a Wells Fargo & Co. analyst in Chicago. That's a similar valuation to what AT&T Inc offered for No. 4 mobile carrier T-Mobile USA Inc in 2011, she said. Verizon Wireless is the largest US wireless carrier.
Verizon Communications shares hit a 13-year high this week.
NO BURDEN
That price for Vodafone's 45 per cent stake, which partner Verizon Communications Inc has told analysts it would be willing to pay, means the value of Verizon Wireless has tripled since it was formed. Companies are typically required to pay a corporate tax rate of 23 per cent on gains in the UK. While no deal or structure for a potential one has been announced, Vodafone could get away with paying nothing because of the so- called substantial shareholding exemption.
A transaction that sends no money into UK coffers could alienate Newbury, England-based Vodafone's home government and consumers, tax experts and analysts say. Struggling to rein in a budget deficit that hit £120 billion ($186 billion) last financial year year, politicians have grilled Starbucks Corp, Google and Amazon.com Inc executives on their taxes.
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"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 UK, 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 decade-long dispute over how its business in Luxembourg reduced what it paid in UK taxes.
HMRC rule
The substantial shareholding exemption lets publicly traded companies based in the UK avoid capital-gains taxes when selling shares in enterprises where the stake is bigger than 10 per cent and was held for a 12-month period in the two previous years, Her Majesty's Revenue & Customs said in an e-mail. BP Plc got the exemption when selling its 50 per cent stake in Russian oil producer TNK-BP in March for $16.7 billion in cash and 12.8 per cent of shares in acquirer OAO Rosneft.
The sale "is expected to be exempt from UK corporation tax under the provisions of the substantial shareholdings exemption," said David Nicholas, a BP spokesman.
US tax exemptions could also save Vodafone from paying "untold amounts" there, according to Robert Willens, a New York-based independent tax specialist. Verizon believes it can structure a deal so Vodafone would only owe about $5 billion in taxes there, said a person familiar with Verizon's thinking who asked not to be named because the deliberations are private.
Price discipline
Simon Gordon, a spokesman for Vodafone, and Bob Varettoni, a Verizon spokesman, declined to comment on tax strategies surrounding the Verizon Wireless stake. Sara Eguren, a spokeswoman at the Internal Revenue Service in Washington, said the agency can't comment on specific companies' issues.
Verizon executives including Chief Executive Officer Lowell McAdam met with analysts at JPMorgan Chase & Co. this week about Vodafone's stake, according to a note yesterday by Philip Cusick, a JPMorgan analyst. Verizon "expressed discipline on price" and sees "Vodafone's only other option to monetise its Verizon Wireless stake would be an IPO, which could potentially create a bigger tax liability versus the mid-single-digit billions in selling to Verizon," Cusick said.
Verizon hinted the venture may not pay a distribution to its owners this year, as its priority will be to pay down $5 billion in debt coming due by mid-2014, according to the note.
Verizon has communicated with some analysts that it believes the fair value for Vodafone's 45 per cent stake in Verizon Wireless is about $100 billion, people familiar with the matter said last week. That's lower than the $120 billion valued by some analysts.
That $100 billion pricetag implies Verizon is valuing the wireless stake at about 7.5 times earnings before interest, taxes, depreciation and amortisation, said Jennifer Fritzsche, a Wells Fargo & Co. analyst in Chicago. That's a similar valuation to what AT&T Inc offered for No. 4 mobile carrier T-Mobile USA Inc in 2011, she said. Verizon Wireless is the largest US wireless carrier.
Verizon Communications shares hit a 13-year high this week.
NO BURDEN
- Companies have to pay a corporate tax rate of 23% on gains in the UK
- The substantial shareholding exemption lets publicly-traded companies based in the UK avoid capital-gains taxes when selling shares in enterprises where the stake is more than 10% and is held for 12 months in the two previous years
- US tax exemptions could also save Vodafone from paying 'untold amounts' in the country