It was a bold effort, but looks likely to be unsuccessful. The attempt by the
3G operators to reclaim more than £3bn in VAT from the government was doomed to
failure, according to advisers.
Greg Sinfield, the indirect tax partner at law firm Lovells, said that their
arguments were at the least ‘interesting,’ a word that killed them stone dead
The operators had been trying to argue that in charging them £22.5bn for the
licences, the government had been operating as an economic agent, engaging in
economic activity in the phraseology of VAT, rather than acting as a public
The advocate general of the ECJ last week said that argument would not work.
The key conclusion was: ‘Activities pursued by bodies governed by public law
under a special legal regime applicable to them are to be considered activities
engaged in as public authorities within the meaning of the first subparagraph of
Article 4(5) of the Sixth Directive.
‘The exercise of public authority is not precluded by the fact that, in
fulfilling the responsibilities exclusively allocated to it, the State makes use
of a procedure derived from civil law or receives a high amount of revenue from
The court will now consider its verdict on the case, which generally follows
the ECJ judgment. It would be surprising if it ignored the various arguments
against the mobile operators’ case.
Dennis Knowles, indirect tax partner at Deloitte, agreed with Sinfield that
this was not an unexpected outcome: ‘The general thrust of the opinion is not
surprising, given recent case law and the amount of VAT at stake.’
But he added: ‘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.’
Sinfield said that you could not blame the telecoms groups for trying, given
the money at stake. There will be some who may think, however, that this was
another case where the lawyers did rather better out of things than anyone else.
‘At the end of the day what really matters is the court’s decision, as this
is just an opinion, and it does not always follow the opinion,’ a spokesman for
O2 said, somewhat optimistically.
T-Mobile said it would study the statement before commenting.
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