Luxemburg, 26/06/2007 (Agence Europe) - On Tuesday 26 June, the Court of Justice ruled (in cases C-284-04 and C-369/04) that the State's sale by auction of 3G mobile telecommunications licences does not constitute an economic activity, since it does not supply goods or services for profit. The holders of licences sold by the British and Austrian states now find themselves in the position of not being able to seek substantial tax reimbursements (VAT which they paid on purchase of the licences). In 2000, the Radiocommunications Agency (United Kingdom) and the Austrian Telekom-Control-Kommission (TCK) each issued licences for the use of certain frequency blocks for the provision of mobile telephone services in accordance with the UMTS/IMT-2000 standard (also known as third generation or “3G” mobile telephone services). The licences were allocated to a number of companies for a total sum of £22.5 billion (€38 billion) in the UK and €831.6 million in Austria.
In the main proceedings before national courts, the companies concerned argued that the allocation of the rights was a transaction subject to VAT, and that the payments made for using the frequencies had, therefore, contained VAT. In the case of T-Mobile Austria GmbH, this would mean that of the €180 million paid out, VAT accounted for €30 million, according to a company employee. These €30 million should, then, have been able to be reclaimed from the state or at least have been tax deductible.
This argument was not, however, accepted by the Court. Unfortunately for the companies involved, sales by governments do not constitute an “economic activity” within the meaning of Council directive 77/388/EEC on VAT, since it is not the use of an asset for the purpose of obtaining income on a continuing basis. It is the operators who operate the market by exploiting the network - the licences bought from the state being an authorisation, not a service provided. Unfortunately for the operators and their accountants, no part of the sums paid for the licences can be considered VAT. (cd)