Advance tax agreements
These can arise when there are complex transactions, unclear tax regulations or substantial values involved, and tax authorities seek to provide companies of all sizes with both formal and informal rulings and clearances in order to reduce uncertainty.
Allowable expenses
Allowable expenses are essential costs that businesses incur in providing services to customers, and which they can take a deduction for when calculating their tax liabilities. These costs include payroll costs, office costs and the cost of buying goods.
Arm’s-length principle
This is the principle of pricing of a transaction between related parties as if the parties were acting as independent entities.
Artificial arrangements
These are where transactions, activities or arrangements are undertaken without any significant commercial purpose.
Our tax code of conduct provides that we will enter into tax planning where the financial benefit is tax related but we will not engage in artificial tax arrangements. The test of artificiality is generally aligned with the existence of commercial purpose.
Some such cases could include, for example, the rationale for and ability to hold investments in other entities of the group , or the choice of tax jurisdiction for the undertaking of certain activities or the involvement of a particular entity in a transaction, or the role of a particular entity in a transaction.
The use of such arrangements would be “artificial” where there is otherwise no commercial purpose for the activities or if the attribution of profits or other benefits to a jurisdiction were not based on the actual activities and capabilities but merely on a contractual description of rights for which no capability exists.
Other artificial arrangements could include the provision of debt where there is no commercial rationale, provision of goods and services where there is no benefit to the recipient, the routing of transactions either financially (for withholding tax) or physically (for VAT) through companies which play no part in the underlying commercial arrangements.
Base erosion
This is the term used to describe the reduction in a country’s overall tax revenues as a consequence of the fluid movement of corporate activity and funds between different jurisdictions.
BEPS
This is the OECD’s project that is designed to address artificial base erosion and profit shifting (BEPS). The initiative intends to ensure that multinationals are taxed “where their economic activities take place and value is created”.
Deferred taxation
This is an accounting concept whereby the future tax consequences of past transactions are reflected in the accounts of a company. A deferred tax liability means that more tax will be due in the future as a result of past transactions, whereas a deferred tax asset means that less tax will be due in the future.
Depreciation
This is the amount included on the profit and loss account of a company each year to reflect the reduction in value of capital expenditure (e.g. network equipment).
Diverted profits tax
A tax introduced by the UK from April 2015 to tax circumstances where multinationals either contrive arrangements so as to not meet the definition of a taxable presence in the UK or artificially divert UK profits to an entity in a lower tax jurisdiction purely for tax reasons.
Double taxation
This is the taxation of the same income twice by two or more different tax jurisdictions.
Effective tax rate
This is the ratio of tax expenses included in the financial statements compared with the profits shown in the same financial statements.
Enhanced cooperation
This is a procedure whereby a minimum of nine EU member states are allowed to establish advanced integration or cooperation in an area within EU structures but without the other members being involved.
Exchange of information
This refers to the exchange between tax authorities of information relating to taxpayers in each jurisdiction. The type of information exchanged could relate to bank accounts held by taxpayers or to sharing of country by country reports prepared under the BEPS initiative.
Holding company
This is a type of company whose principal purpose is to hold and manage investments in other companies or joint ventures.
Internal revenue
This includes transactions between subsidiaries, holding companies and group entities, such as royalties, brand and intellectual property licence fees and interest payments. These transactions are subject to transfer pricing rules that require the attribution of revenues and profits on an ‘arm’s-length’ basis, based on independent comparable valuations.
Permanent establishment
This describes the activities that take place in a country that requires the filing of a tax return and possibly the payment of taxes in that country. This is another name for a taxable presence.
Profit before tax
This represents the profits we earn after the deduction of all costs. This number forms the basis on which we pay corporation tax.
Profit shifting
This is the term used to describe the artificial arrangements under which companies move profits from one jurisdiction to another jurisdiction in order to minimise tax payments.
Revenue
This represents the total income earned by a company and includes the amounts earned from selling services to customers or other Group companies, income received for royalties for use of brands and interest income.
State aid
This generally arises in the EU when a member state, through a government body, has granted some form of advantage to an individual or company.
Tangible assets
A tangible asset is an asset that has a physical form (e.g. buildings, network equipment).
Taxable presence
See ‘permanent establishment’.
Tax (filing) positions:
A filing position refers to the treatment of income, expenditure or transactions on a tax return. The code of conduct “more likely than not” criterion of a position being sustained on its merits if challenged by a tax authority is expected to cover the majority of situations. However, there are instances in which a filing position will not meet the more likely than not standard but would still be tenable.
Examples of such tenable filing positions acceptable under this strategy (subject to full disclosure and the principle that we will pay the right amount of tax due) are:
- Where there are current uncertainties created by a comparison of any or all of the wording of law, tax authority interpretation of law and experience of the law as interpreted by the legislative system.
- Where there are current uncertainties or opportunities created by recognised errors in law not yet corrected.
- Where a position would be in accordance with an announced future correction of law.
- Where the cost of full compliance with the law would be prohibitive but a reasonable estimate can be reflected.
Tax filing positions taken by Vodafone will never be based on a principle of “not being found” nor for the sole purpose of obtaining leverage in the bargaining process of a settlement
Tax haven
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 lower headline or effective tax rate than Country B, then through the eyes of the people of Country B, Country A could be considered to be a tax haven. A more nuanced definition of the term tax haven focuses on national tax policies that 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.
Transfer pricing
This refers to the setting of the price for goods and services sold between related entities within a Group. Transfer pricing should be based on the arm’s-length principle. It is used to ensure that profits are allocated to the countries where the relevant economic activity takes place.
Withholding taxes
This refers to a tax that is deducted at source, (withheld) from certain types of payments, usually royalties, interest or dividends, where these are made between entities in different countries. The tax is actually received in the country making the deduction but it is the company in the country that suffers the tax which reports the payment.
