3G licence-holders could sue State over VAT in fees

The holders of the Republic's third-generation mobile phone licences could sue the Government to reclaim millions of euro in VAT, which they believe was included in the fees paid for the licences.

Vodafone, O2 and Hutchison estimate a successful claim could claw back €50 million in VAT that should have been levied as part of the third-generation licence fees.

All three firms indicated last night that they had not ruled out lodging a claim against the Government and said they were awaiting the outcome of cases lodged in Austria and Britain.

The third generation, or 3G, licences will enable the firms to offer high-speed internet services to consumers. The licences were sold by the State in 2002 for €278 million, payable over several years.

Hutchison, which is a new entrant in Ireland, is one of six firms that are currently suing the Austrian government to reclaim €140 million of the €832 million licence fees they paid in 2000.

The six firms claim VAT should have been included in the total licence fee levied by the Government, and therefore can be claimed back by each firm.

Any future VAT claim in the Republic is expected to be made on similar grounds to this case.

An O2 Ireland spokeswoman confirmed that its sister firm in Britain had lodged a similar VAT claim for hundreds of millions of pounds for its UK licence.

She said the firm had not taken any decision yet in the Republic as regards the VAT issue and would await the outcome of developments in the other cases.

Similarly, a Vodafone spokeswoman said it had no immediate plans on VAT issues but had not ruled anything out in the future.

However, the firms chances of a successful outcome in the Austrian case were dealt a blow last night by the European Commission. In an initial assessment, the Commission said operators should not be entitled to claim back VAT on network licences.

"Our preliminary view is that because these fees are licence fees to a public authority... they cannot be subject to VAT," said the European Commission spokesman, Mr Jonathan Todd.

Mr Todd said that under EU rules, VAT could be claimed back if governments were to offer telecom services, but this was not the case: "Handing out a licence is not offering a telecom service."

The lawsuits argue that the Austrian tax code requires the government to levy 20 per cent VAT, and that this levy must have been included in the overall licence price.

The tax code also provides deductions for that same VAT, meaning it should be repaid, the companies say.

(Additional reporting Reuters)