Contact: Jamie Harley
Deloitte
Public Relations
+44 20 7303 5037
Mobile phone operators, including Hutchison 3G, Orange 3G, mmO2, T-Mobile and Vodafone, have been dealt a major blow in their bid to reclaim £3 billion in VAT paid on the purchase of licences to run high speed mobile phone services - known as third-generation or 3G licenses.
In a case going through the European Court of Justice (ECJ), the Advocate General has today issued an opinion stating that although the transactions (which earned the UK Government £23 billion) were ‘economic activities’, they were outside the scope of VAT because the activity concerned the issue of the licences by a “public authority” and the Government was not acting in a ‘private capacity’ so the activity was not taxable.
It is expected that the ECJ decision, expected later this year, will follow the Advocate General's opinion. If it does not, the UK Government could be facing rebates in the region of £3 billion plus interest.
Dennis Knowles, indirect 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. If the ECJ follows this opinion, the most significant implications are likely to be on public authorities carrying out functions that are or could be carried out by private operators: the effect could be to bring more activity within the scope of VAT, with clear financial implications for the authorities and those who deal with them.
“Mobile phone operators will be carefully analysing this opinion, particularly given the future demand for fourth and possibly fifth generation technology. It will make companies think twice about entering into contracts with the Government until they have seriously considered all the consequences, including tax.”
Mobile phone operators are challenging UK and Austrian governments over repayments of VAT, which they argue are due to them on the purchase of the 3G licences. In two parallel cases operators are claiming recovery of over £3 billion (5 billion euros) of VAT that they argue is due to them because the Government was acting as a “taxable person” and not in the capacity of a "public authority". The mobile phone operators consider that VAT was included in the licence fees and therefore recoverable.
It is expected that the ECJ decision, expected later this year, will follow the Advocate General's opinion.
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