Vodafone Foundation Vodafone, Luxembourg and 'tax havens' Many governments choose to develop tax regimes that offer multinational companies some form of competitive advantage in order to attract inward investment. As a consequence, variations have emerged between the tax regimes of different countries over the years. Some countries, as a result of the tax regimes offered, have found themselves dubbed tax havens, particularly where specific aspects of their national tax system offer significant advantages to businesses that choose to locate there. Tax Havens There are a number of different definitions of the term tax haven. At its simplest, the term is relative: if the tax regime in Country A has a significantly lower headline or effective tax rate (ETR) than Country B, then, through the eyes of the people of Country B, Country A could be considered to be a tax haven. Currently, most governments – including all European Union (EU) member states and international organisations such as the OECD – respect a government’s sovereign right to determine tax matters. They also recognise that there is a clear distinction to be made between fair tax competition focused on the rates and scope of taxation and tax practices which discriminate in favour of specific companies or which cause harm to the wider economy. A more nuanced definition of the term tax haven focuses on national tax policies which have the effect of incentivising activities that are ring-fenced from the local economy, may be specific to individual companies rather than available to all market participants, and may be largely artificial in nature and designed purely to minimise tax. In February 2021 the European Commission updated their list of non-cooperative jurisdictions (those areas widely understood as the most extreme form of tax haven), as well as the list of jurisdictions that have committed to address deficiencies (in terms of poor transparency or deviation from international best-practice standards). We do not operate in any of the non-cooperative jurisdictions. Until October 2019 we had an interest in two legacy entities in the Seychelles, but we withdrew from this structure following our acquisition of Mirambo’s stake in Vodacom Tanzania in October 2019. We operate in two jurisdictions which have committed to address deficiencies (Turkey and Australia). In Turkey we have a substantial licensed operating company with 24.6 million fixed and mobile subscribers as of 31 March 2020. We are also a significant supplier of communications services to Turkish corporate and public sector customers. In Australia we have a 50-50 joint venture with Hutchison Telecommunications (Australia) Limited and a 25.05 interest in TPG Telecom. These legal entities play no role in reducing the taxes payable by the Group. Across all our countries of operation worldwide we apply the same Global Tax Principles and report the same information for each local market, regardless of location. We do not enter into the kind of artificial arrangements that are of concern to the European Commission and others We provide a list of all legal entities in each country, together with a narrative description and a summary of all key financial metrics in the’ Country contributions’ of our Report. We do not we enter into the kind of artificial arrangements including those that are of concern to the European Commission and many others in any of these countries (or in any other location). Luxembourg One country that has been the focus of public and political scrutiny in recent years is Luxembourg. Vodafone has a significant presence in the country, and our subsidiaries there play a central role in managing some of the most important aspects of Vodafone’s global operations, including centralised procurement, financing and roaming. Our subsidiaries in Luxembourg are not brass plate companies. They are substantive entities that carry out extensive activities that are critical to our businesses worldwide. We employ more than 300 people in Luxembourg whose responsibilities include: Management of the financing of many of our international operating companies and joint ventures, providing internal loans on a commercial ‘arm’s-length’ basis to reflect the costs of borrowing from an external bank, in line with international best practice Negotiation and management of the roaming contracts and enabling technical connectivity with more than 700 foreign networks that enable Vodafone customers to confidently roam virtually anywhere worldwide Leadership and end to end management of the Vodafone global supply chain and day to day operations of our global purchasing function – the Vodafone Procurement Company (VPC) – negotiating and administering more than €16 billion of global supplier contracts Our start-up incubator hub, Tomorrow Street, created in partnership with the Luxembourg government, to lead on innovation In common with many other EU member states, Luxembourg’s tax legislation is scrutinised and approved by the country’s parliament. The tax principles its laws are based on are largely in line with those of many other member states, including a standard corporation tax rate that (at 24.94%) is higher than the corporate tax rate in a number of other EU member states. Tax losses and Luxembourg As is the case in many member states, Luxembourg tax law also includes features that are particular to them and were designed to shape the local tax regime to incentivise inward investment. One of those features is particularly significant from Vodafone’s perspective. Under long-established Luxembourg tax rules, a reduction in the book value of a company’s investments (an impairment or writedown of goodwill) that has been verified by independent auditors and the local tax authorities is recognised as a tax loss that can be offset against future profits. This would occur, for example, if a multinational group with a subsidiary in Luxembourg acquired another business but then saw the value of that acquisition reduced as a result of deteriorating market conditions or performance. The difference arising between the acquisition cost and the newly reduced value of the acquired business – and therefore the loss experienced by shareholders – is treated as a loss for tax purposes and can be offset against profits. While it may be a ‘paper loss’ up until the point where the company seeks to realise the asset, for the company’s shareholders it is unquestionably a loss nevertheless. Similar rules were in place in Germany when Vodafone acquired the Mannesmann conglomerate in 2000. That acquisition was followed by the dotcom crash, wiping tens of billions of euros off the value of the former Mannesmann business, resulting in significant losses for the Luxembourg subsidiary involved, and ultimately for all of Vodafone’s shareholders. Under the standard Luxembourg tax code, we are able to offset those historical losses against profits realised within our Luxembourg subsidiaries. More recently, however, the Luxembourg government introduced changes to the tax regime that place a time limit on how long losses incurred after 1 January 2017 can be utilised. This does not affect Vodafone’s losses as they date back to the Mannesmann acquisition. In addition, under UK CFC rules, a proportion of profits from our Luxembourg subsidiary’s global financing activities are also taxable in the UK. LuxLeaks, and the Panama Papers and Paradise Papers In 2014, there was considerable public debate as a result of the publication of the so-called LuxLeaks confidential documents that allegedly set out details of the tax affairs of thousands of individuals and companies. As Vodafone’s tax affairs in Luxembourg conform to the rules set out in the standard Luxembourg tax code we were not a focus of the LuxLeaks disclosures. The subsequent ‘Panama Papers’ leaks did not involve Vodafone, nor did the more recent ‘Paradise Papers’ disclosures. While we have a number of legal entities in the countries that were the focus of both Papers, these are predominantly a legacy of prior acquisitions and play no role in reducing the taxes payable by the Group or its subsidiaries. European Commission illegal state aid investigations Learn more about our economic contribution Tax and emerging markets Employment and skills development and are widely recognised as a positive force for good by governments and civil society alike. Vodafone's tax principles and strategy Vodafone operates within a clearly defined governance framework on tax that is designed to provide certainty for all stakeholders. Vodafone corporation tax Governments seek to adjust their tax regimes to stimulate investment and encourage job creation. 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