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Operators Lose $6B Tax Rebate Case

European operators in the U.K. and Austria lost their bid today to claim back more than $6 billion in taxes they argued were included in 3G license fees in 2000. (See EU Rejects Tax Rebate.)

In a widely expected decision, Europe's highest court, the European Court of Justice, rejected operator arguments that the 3G license fees, totaling $46.1 billion, included refundable value-added tax (VAT). The ruling ends a three-year legal battle and quashes the hopes of other operators making similar tax rebate claims on their governments, such as in Germany, where another 3G tax refund case is reportedly pending.

Today's decision comes as no surprise to the operators and the market. It was never really expected to work, but while there was a remote possibility of winning, the operators had to try.

It's difficult to forget that during the crazy days of the Internet boom, operators in 20 European countries poured more than $100 billion into government coffers for 3G licenses. In the U.K. alone, the government collected £22.5 billion ($45 billion) in license fees. In Austria, 3G license fees totaled a more modest €832 million ($1.1 billion).

In the U.K. Vodafone Group plc (NYSE: VOD), Telefónica Europe plc (O2) , Orange UK , T-Mobile (UK) , and 3 Group hoped to get back about $6 billion of that cost via a VAT refund. The operators claimed that the license award transactions were subject to VAT, which they could claim back from the U.K. government. In 2004, the U.K. government referred the case to the European Court of Justice (ECJ) in Luxembourg.

At about the same time, the Austrian government referred a similar case to the ECJ, where T-Mobile Austria , Hutchison 3G Austria GmbH , Mobilkom Austria AG & Co. KG , ONE Mobil , and tele.ring Telekom Service GmbH also wanted a VAT refund.

Today, the ECJ said, Neen! [Ed note: That's "No" in Luxembourgish. But the court didn’t say, Mäin Loftkësseboot ass voller Éilen, which apparently means, "my hovercraft is full of eels."] Only "economic activities" are subject to VAT, and allocating spectrum licenses by auction is not an economic activity, according to EU law.

Are operators now out of legal ideas for getting some compensation on their 3G license fees?

A Vodafone spokesman said the operator would study the decision and consider what its response would be.

— Michelle Donegan, European Editor, Unstrung

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