June 9 2003
 

BRITAIN’s five mobile phone operators are considering launching a claim for a £4 billion refund of VAT. The companies believe the £22.5 billion they paid in the third-generation licence auction three years ago included VAT.
 

A claim, if launched, would be fiercely resisted by the Treasury, which used the windfall proceeds to make record debt repayments during 2000.

The Government says the sale of licences was VATexempt, a position that is now being challenged. If the operators could prove that VAT was part of the purchase price, then they could apply for a VAT refund worth 17.5 per cent of the total, or £3.9 billion, from Customs and Excise.

Most businesses do not pay VAT, although sometimes a company has to reclaim the sales tax back from the authorities when it has been forced to pay up on a purchase.

The search for a legal basis to challenge the Government remains at its early stages, but all Britain’s operators — Vodafone, Orange, mmO2, Deutsche Telekom’s T-Mobile and Hutchison Whampoa’s 3 — have examined the issue carefully. None is yet ready to discuss the subject in public. But privately, one operator said: “Our shareholders would expect us to look at this seriously, given the sums involved.”

The background to any British claim comes from Germany, where third-generation licences were sold for £30.5 billion in 2000. VAT is harmonised across the European Union, and a ruling in Germany would have clear implications for the UK.

The Dutch group KPN said earlier this week that it was orchestrating a campaign of the country’s big four operators, which include Vodafone, and mmO2, to pursue a VAT refund which would be worth £5 billion. The Times has learnt KPN is demanding a VAT invoice from the German Government, which has refused to comply.

A spokesman for KPN said: “There is no consensus amongst tax experts as to whether VAT was applicable on the licences. There are discussions ongoing in Germany, and legal action is always possible if the tax authorities are not willing to comply.”

British tax experts believe that a claim for a refund would be optimistic but not impossible. Paddy Behan, a VAT specialist with the accountants Grant Thornton, said: “Because of the amounts involved, it is very likely that the companies will press on.”

The EU’s Sixth VAT Directive, which governs the tax’s basic principles, says VAT should not generally apply to public authorities. However, it also says that if a public authority engages in one of a list of specified activities, including telecoms, then VAT must be levied.

Mr Behan said: “The rules seem to be designed for when telecoms services are provided by state-owned providers, but the companies in these cases may try to argue that the licensing round was a telecommunications activity. If this were accepted they would get the result they want but it is a difficult argument to make.”

A spokeswoman for Customs and Excise said: “We are monitoring what is happening in Germany. But we will defend any attack on legitimate government revenues; in our view no VAT is due on regulated activities.”

A sudden need to find £4 billion from the Treasury’s coffers this year would be a headache for Gordon Brown. The demand would come at a time when the public finances are badly stretched by weakening tax revenues and extra public spending.

.

Search For More Info

Web www.cellular.co.za