Vodafone, O2 and 3 appealed to the ECJ that under EU tax law, they should be allowed to reclaim VAT payments. But Advocate General Juliane Kokott said the auctions were not liable to VAT because, in issuing licences, government was carrying out an activity required of it as an authority.
Dennis Knowles, tax partner at Deloitte, said the general thrust of the decision was not surprising, given recent case-law and the amount of VAT at stake. “If the European Court of Justice follows this decision, 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”.
The operators were claiming £3bn (e5bn) of VAT that they say was due to them because the Government was acting as a “taxable person” and not in the capacity of a “public authority”. The Mobile Phone operators considered that VAT was included in the licence fees and therefore recoverable.
The Advocate General disagreed; that the transactions, in which the UK Government earned £23 billion, were “economic activities”, however they were outside the scope of VAT because the activity concerned the issue of the licences by a “public authority” and the Government was not acting in a “private capacity” – so the activity was not taxable.
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