EU court rejects telecom firms' VAT claim

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LUXEMBOURG (Reuters) - Mobile phone operators cannot claim billions of euros in what they say they paid as value-added tax when they bought 3G licences from the British government, the European Union’s top court ruled on Tuesday.

Vodafone , O2 , T-Mobile , Orange and Hutchison <0013.HK> argued the VAT sales tax was levied by Britain. However, UK tax authorities argued there was no VAT component in the fees for licences sold in 2000.

The operators were trying to reclaim 3.3 billion pounds from a total bill of 22.5 billion pounds.

The operators argued that under EU tax law, they should be able to reclaim such payments because subscribers, rather than the companies, were the final consumers.

But the court disagreed, saying only economic activity is subject to VAT taxation.

"The award by the state of 3G mobile telecommunication licences by auction does not constitute an economic activity," the European Court of Justice said in a statement.

"The court holds that such an activity (auction of 3G licences) constitutes a necessary precondition for the access of economic operators to the mobile telecom market.

"What is at issue is the activity of controlling and regulating the use of electromagnetic spectrum."

The court also ruled against T-Mobile Austria and others in a similar .....continued below

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The cases were being watched closely by operators across the 27-country EU, where many national governments pocketed billions of euros in return for third-generation licences during the telecom boom years.

The licences allowed operators to offer enhanced mobile phone services other than just voice calls, including Internet access and television on phones.

But network problems, the high costs of licences and delayed introduction of 3G services as well as an initially muted appetite from customers means few companies have received major returns from their licences.