The write-off stems from Vodafone's 2000 takeover of Germany's Mannesmann, a telecoms company. After the telecoms bubble burst in 2001, the price of Vodafone shares dropped dramatically. Experts say the company is now taking advantage of a German tax loophole to write-off the losses it took by paying too much for Mannesmann.

Coming at a time when the federal government is in desperate need of tax income, the planned write-off is being painted by politicians as corporate greed at the expense of the taxpayers. "It's an unbelievable outrage," German member of parliament Michael Müller told the Berliner Zeitung newspaper. The state government in North Rhine-Westphalia, where Mannesmann was based, is also looking into the legality of the move.

The state, Germany's largest, is especially dear to Chancellor Gerhard Schröder. In one year, state elections will prove an important litmus test for his or his Social Democrat Party's re-electability in federal elections in 2006. But tax specialists say the government's populism on the write-off will not have much of an effect on the decision.

"I'm afraid Vodafone has had a very close look at German tax laws and discovered a loophole," tax expert Wolfgang Gehrke told Deutsche Welle. "This loophole is costing the finance minister up to €25 billion. For ordinary German taxpayers this is unacceptable, but only morally and not legally."

Lenient laws

In 1999, Schröder's government rewrote the tax laws to give companies leeway to offset past losses against current profits. In 2001, Vodafone bought Mannesmann for €200 billion, a figure observers thought very high at the time.

When the telecoms bubble burst in 2002, the price of Mannesmann shares dropped from €309 to €200 a share, resulting in a loss of about €50 billion to the mother company, Vodafone. The British company is arguing that the drop in value is permanent, granting it the right to write it off. The North Rhine-Westphalian government said it was looking into the matter.

Mannesmann as scapegoat

The uproar over Mannesmann is a continuation of a saga surrounding the Vodafone takeover and German attitudes toward capitalism. Prosecutors are wrapping up a case in Düsseldorf against six former Mannesmann executives accused of accepting large cash bonuses in order to smooth the way for the Vodafone acquisition. Now government officials want to hold Mannesmann up for a practice that experts say is commonplace in the corporate world.

In 2002, Deutsche Telekom wrote off €21 billion after re-valuing their mobile business in the United States. German power company E.ON wrote off €2.4 billion of the €8.1 billion purchase price of the British company Powergen.

Finance ministry officials have ruled out a legislation change, say that enough measures have already been taken to close abuse of the loophole.