LONDON— The chances that the U.K.’s mobile phone operators could claim back a potential £ 3 billion windfall from the government was dealt a likely fatal blow after a European Court ruled that they should not be allowed to reclaim VAT on their purchases of 3G phone licenses.Between them, Vodafone, O2, T-Mobile, Orange and Hutchison paid £ 22.5 billion for their licenses in an auction in 2000.
The issue of VAT having to be paid was not raised at the time of the auction. But the mobile phone companies later argued that as the sale was an economic activity it was subject to VAT, which they are entitled to reclaim. They claimed that VAT was included in the license fees and was therefore recoverable under EU law.
However, the Advocate-General of the European Courts of Justice has ruled that the state auctioning of 3G licenses is not liable to VAT. “In issuing licenses, the state and its institutions were carrying out an activity required of them as public authorities,” Juliane Kokott said.
The Advocate-Generals judgement is not binding but is followed by the European Court of Justice in the vast majority of cases. The ECJ has not set a date for its final ruling. The landmark ruling is a huge blow to the mobile operators who it now seems obvious overpaid for the 3G licenses.
It also sets a precedent for other European governments and mobile phone operators. It is estimated that between them, European operators paid Euros 100 billion (about £ 68 billion) on gaining the licenses.
The ECJ has also rejected a case brought by Telekom Austria, T-Mobile Austria, Telering, Telefonica and Hutchison 3G against the Austrian government on the same issue.
Dennis Knowles, tax partner at Deloitte, said: “The general thrust of the opinion is not surprising, given recent case law and the amount of VAT at stake.”
He said the operators will be carefully analyzing this opinion, particularly given the future demand for fourth and possibly fifth generation technology. Knowles added the ruling, if confirmed, will make companies think twice about entering into contracts with the Government until they have seriously considered all the consequences, including tax.
Source -http://www.eetimes.com/news/latest/showArticle.jhtml?articleID=192700027
Posted by wirelessfed 