Ireland’s 400,000 Vodafone shareholders do not have to face a heavy tax bill on the EUR 27.5 million windfall payment expected from the company next month, the Revenue Commissioners have stated.
The reason, a briefing document from the tax office explained, is that nearly 15 years after the first investment, shareholders continue to operate at a loss.
Following Vodafone’s decision to sell its US business to Verizon, its partner in the venture, “provisional” guidance was issued on the move’s tax implications.
Shareholders will be given cash, shares in US telecoms group Verizon, and shares in a smaller Vodafone – providing the shareholders approve the deal.
With an approximate minimum holding of 55 shares, this creates the EUR 27.5 million.
However many investors probably owned more than this – meaning the eventual payment may be much larger.
Irish investors constitute the lion’s share of the 450,000 individuals who first invested in Telecom Éireann in 1999.
A few years later when Telecom sold Eircell – the mobile arm of the business – shareholders received Vodafone shares.
This time, shareholders can receive their windfall as a special dividend (providing income) or as capital.
The Revenue Commission’s “provisional” guidance is based on 6th of December share values.
According to the estimates, the shareholders would receive EUR 0.89 in Verizon shares, and EUR 0.36 in cash per Vodafone share. This creates a total payout of EUR 1.25 per share for stakeholders.
Yet in the briefing document the Revenue Commission also state that the “base cost” value – or original value of the Verizon arm of the business – is near to EUR 2.18 Vodafone share price.
Therefore if the value remains the same until the demerger, shareholders will be nearly EUR 1 down on each share of Vodafone stock after the “windfall.”
While sobering, this has led Revenue Commission to state that the lack of capital gain means shareholders will not be liable to capital gains tax for the shareholders who decide to take the windfall as capital.
Those choosing the option to take value as income however will incur income tax.
The exact value of this deal will remain uncertain until shortly before the demerger is completed – currently stated for the 21st of February – when the price of Verizon shares will dictate the split between cash and shares.
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