Vodafone, the British mobile phone giant, refunded an estimated  €67m to the UK's Revenue & Customs after the discovery of an Irish tax haven deal  that enabled the group on receipt of royalties at a shell company in Dublin, to transfer over €1bn in dividends to low-tax Luxembourg.

The Guardian newspaper reported on Sunday that in the period 2002-2007, Vodafone used an Irish registered company to collect hundreds of millions  of pounds a year in royalty payments from operating companies and joint ventures around the world.

The company was similar to arrangement disclosed by a US Senate panel last May, that Apple used Irish shell companies to transfer large multi-billion dollars sums to avoid payment of taxes.

The Apple disclosures triggered denials by the Irish Government that Ireland was a tax haven. However, a letter to the leading senators on the Senate Permanent Subcommittee on Investigations, received a swift smackdown:

Senator Carl Levin and Senator John McCain, responded to the Irish letter by saying:

"Most reasonable people would agree that negotiating special tax arrangements that allow companies to pay little or no income tax meets a common-sense definition of a tax haven."

SEE: Irish Government's foolish tax letter to US senators

Vodafone made a settlement in 2009 with Her Majesty's Revenue & Customs (HMRC) but it kept the settlement secret.

The overall size of the settlement has not been revealed but it involved Vodafone reclaiming €67m from the Irish government in tax that should have been paid in the UK, the Guardian reported.

By 2007, Vodafone Ireland Marketing Ltd (VIML), a company registered to an industrial estate in the Dublin suburb of Leopardstown, was reporting a turnover of €380m (£320m) a year.

During a four-year period, these royalty payments, collected from most countries except the UK and Italy, had helped Vodafone send more than €1bn worth of dividends to the low tax jurisdiction of Luxembourg from Dublin. The dividends, which include a final payment of €142m due to be delivered this year, came from profits made after taking advantage of Ireland’s low corporation tax rate.

By 2007, Vodafone decided to move some staff to Dublin when it appeared that the HMRC became aware of the arrangement. 

Throughout the period covered by the settlement, the profits of VIML had been taxed by the Irish authorities at the rate of 25%, the UK-based mobile phone group said.

In accordance with the Treaty between the UK and Ireland which prevents double taxation on the same income, the Irish government credited taxes previously paid by Vodafone and these were then paid to the UK Treasury as part of the overall settlement, the company added.

The Guardian said: "The Irish accounts illustrate one important advantage: if the firm could show it was "carrying out trading activities" from Dublin, the corporation tax rate would be halved.

According to the 2008 company filings: "Following the establishment of the global brand management function in Ireland the activities of the company have increased. A confirmation has been obtained from the Irish Revenue that the company is now carrying out trading activities and, accordingly, subject to the corporate tax rate of 12.5%." The rate would apply from 1 November 2007."

Check out our subscription service, Finfacts Premium , at a low annual charge of €25