The case has been referred to the European Court of Justice after a VAT tribunal highlighted six points that needed clarification by the European court.
The UK government’s argument centres around the assertion that a public body could not be involved in an economic activity, meaning that VAT would not have been paid.
However the UK’s five 3G licence holders – Vodafone, O2, Orange, Three and T-Mobile – are arguing that the auction was conducted in a commercial capacity and therefore VAT would made up part of the overall £22.5bn cost, meaning it could be reclaimed.
‘The meaning of the word telecommunications could decide this case,’ Paddy Behan, a VAT specialist at Grant Thornton told The Financial Times. ‘If the operators’ definition is accepted by the court, it is hard to see how they could lose.’
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