Mobile operators call on ECJ to answer £3bn question

The 3G mobile operators will tomorrow discover if they are likely to be
successful in an audacious attempt to recover more than £3bn from the UK tax
authorities in a VAT reclaim on the 3G licence purchases.

The operators ­ Hutchison 3G, T-Mobile, Vodafone, mm02 and Orange ­ are
trying to reclaim £3.35bn from Customs over the licenses, in a claim that could
have been avoided if the government had said the deals were ‘exclusive of VAT,’
a tax adviser told Accountancy Age this week.

The mobile phone companies will hear today what the advocate-general of the
European Court of Justice makes of their claim. AG opinions are not binding on
the court, but are followed in most cases.

The case hinges around the £22.5bn paid for the licences in 2000. The
companies were bidding for the right to operate the new video streaming
bandwidths.

Governments are not considered taxable under the rules, which set out where
and when VAT is chargeable, except in specific circumstances.

The companies are arguing that this is one of those circumstances, and that
it was operating as a supplier of telecommunications services, rather than as a
regulator.

Greg Sinfield, indirect tax expert at Law firm Lovells, said that the
arguments were ‘interesting’ but, ultimately, unlikely to succeed.

The court is likely to be under pressure from the member states, with the UK
not the only country facing the claims.

Sinfield said that the UK government could have said that it did not consider
there to be a VAT liability, but that the licences were ‘exclusive of VAT’
anyway. In that case, any tax arising would have had to have been paid by the
companies in excess of the license fees.

‘This would never have come about with those three words,’ he said.

Vodafone stands to gain the most from a positive ruling, having paid £6bn for
its license. All the others paid just over £4bn.

The operators have hired Linklaters and Freshfields to represent them in the
case, with barristers Paul Lasok QC and Roderick Cordara QC arguing for the
companies.