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Mobile phone firms have lost a legal battle to reclaim tax they said they paid for expensive licences in the UK.

The European Court of Justice (ECJ) has ruled that telecommunications firms such as Vodafone and Orange did not pay VAT when they bought 3G licences for new phone services from the Government. The Court subsequently ruled therefore, that such firms were not entitled to tax refunds of some £3.3bn (4.9bn euros).

The auction of 3G spectrum, which enabled firms to offer video and internet services through handsets, raised more than £22bn for the British government back in 2000.

In the main proceedings before the national courts, the companies concerned argued that the allocation of the rights was a transaction subject to VAT, and that the payments made for using the frequencies had therefore contained VAT. The referring national courts asked the ECJ whether the Sixth VAT Directive imposes a duty to tax
the public auctioning of those licences by the public authorities.

The plaintiffs, which also included O2 and T-Mobile, argued that they were entitled to recover tax since their customers were the ultimate beneficiaries of the deal. However, the ECJ ruled that the award of licences, in itself, did not constitute an economic activity on which tax was paid.

The ruling is final and allows no scope for appeal.
 
The subject of 3G licences has been a huge ongoing headache for the telecommunications industry since their introduction in 2000. The enormous cost of licences themselves, problems with their introduction and underwhelming consumer demand has meant many firms have incurred heavy losses on their investment to date.

Link

ECJ judgement: T-Mobile Austria GmbH and Others v Republik Österreich Hutchison 3G UK Ltd and Others v C & E Commrs