HM Revenue and Customs (HMRC) said it would appeal the High Court’s decision to close its investigation into Vodafone’s Luxembourg operations and alleged links to tax evasion in the UK.
The case related to the payment of taxes on one of the company’s Luxembourg subsidiaries set up after its acquisition of German network Mannesman in 2000.
Justice Edward Evans-Lombe ruled against government claims that Vodafone’s Luxembourg holding was a ‘controlled foreign company’ (CFC) and should therefore be taxed as if it were part of the UK business.
Vodafone said that because the division is a genuine operating subsidiary, rather than an artificial creation, it is not caught by the regulations.
The ruling stands to save Vodafone up to £2.2 billion.
An HMRC spokesman said: "HMRC intends to appeal this decision, and the Government will continue to defend its ability to enforce the Controlled Foreign Currency rules, which are designed to counter tax avoidance through artificial shifting of profits to offshore subsidiaries."
A Vodafone spokesman said: "Our business in Luxembourg is legitimate. We are happy to sit down with HMRC if it wants to discuss this further."