ECJ Denies 3G Licence VAT Refund Claims

by Ulrika Lomas, Tax-News.com, Brussels

27 June 2007

The European Court of Justice has denied an attempt by mobile phone companies to claim back tens of billions of euros in value-added tax from national governments paid when they bought licences to offer third generation services in the countries concerned.

The companies, which include Hutchison 3G, 02, Orange, T-Mobile and Vodafone, are arguing that governments acted in the manner of private organisations when they auctioned off licences giving firms the right to provide third generation, or '3G' services such as video streaming.

The companies believe that the sale of the licences should be viewed by the ECJ as "economic activity", and that it therefore contains the VAT element the firms are attempting to have refunded - a view that was not shared by the ECJ, which concluded in its judgment that: "The Court holds that the allocation, by auction by the national regulatory authority responsible for spectrum assignment, of rights to use frequencies in the electro-magnetic spectrum does not constitute an ‘economic activity’ within the meaning of the Sixth VAT Directive. Thus, that activity does not fall within the scope of the Sixth VAT Directive."

The five UK-based operators paid a total of GBP22.5 billion (EUR32.7 billion) for their operating licences, and they are now seeking a VAT refund totalling GBP3.5 billion. Altogether, mobile phone companies spent more than EUR100 billion acquiring 3G rights in Europe and total VAT refund claims amounted to more than EUR20 billion.

According to the ECJ, ‘Economic activity’ includes "all activities of producers, traders and persons supplying services, inter alia the exploitation of property for the purpose of obtaining income therefrom on a continuing basis".

"What is at issue is the activity of controlling and regulating the use of the electro-magnetic spectrum which has been expressly delegated to that authority. Only the economic operators, who are the holders of the rights granted, operate on the market by exploiting the property in question for the purpose of obtaining income therefrom on a continuing basis. Furthermore, the fact that the issuing of the frequency use rights at issue gives rise to a payment cannot affect the legal status of that activity," the ECJ stated.

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