Mobile phone companies fail to claim VAT on 3G licences

UK mobile phone companies have failed in their bid before the European Court of Justice (ECJ) to recover VAT on payments for 3G licences.

The affected companies are Hutchison 3G UK Ltd, mmO2 plc, Orange 3G Ltd, T-Mobile (UK) Ltd and Vodafone Group Services Ltd. They were allocated licences to provide so-called third generation (3G) mobile phone services, such as video and internet services. The companies paid sums totalling around £22.5bn to the UK government for the 3G licences.

They then sought to claim VAT (of around £3bn) on the payments, on the ground that the allocation of the licences was subject to VAT.

As a principle, a transaction is subject to VAT if it constitutes an 'economic activity'. So the question was, did the allocation of licences by the Government qualify as economic activity?

The ECJ thought not. It held that the allocation of rights by the Agency constituted 'a necessary precondition for the access of economic operators to the mobile telecommunications market.' Such an activity by a national authority could not constitute participation in the market. The Court therefore held that the allocation did not constitute economic activity, and was therefore not subject to VAT. The mobile phone companies were therefore not entitled to claim VAT on the amounts they had paid.

To read the ECJ press release click here.

For the full judgment, click here.

Note. A similar case concerning Austrian mobile phone network providers was also being heard by the ECJ at the same time as the above case. To read that judgment, click here.

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