Vodafone has won a key legal battle against the UK tax authority, HM Revenue and Customs, in a judgment that has cast major doubt on the compatibility of the UK’s controlled foreign companies (CFC) regime with European Union law.

Mr Justice Edward Evans-Lombe ruled in the High Court on 4th July that Vodafone does not have to pay UK corporation tax on income attributed to its Luxembourg holding company Vodafone Investments Luxembourg Sarl (VIL). Consequently, he ordered HMRC to shut an ongoing tax inquiry into Vodafone’s tax for the year to March 2001.

Vodafone has estimated that the court victory has saved it more than GBP2bn (USD4bn) in tax and interest that it might have been ordered to pay had the judgment gone against the company. However, the ruling also has ramifications that go much wider than Vodafone’s corporate arrangements, and several UK-based multinationals with subsidiaries in favorable EU tax jurisdictions such as Ireland, Luxembourg and the Netherlands, who are said to be under a similar type of scrutiny from HMRC, are likely to be breathing a sigh of relief as a result.