BRITAIN’S leading mobile operators were dealt a blow yesterday after Europe’s highest court was advised that they should not be able to claw back £3.3 billion of tax rebates on third-generation mobile phone licences.

In a boost for the British Government, an advocate- general to the European Court of Justice (ECJ) advised that Vodafone, Orange, T-Mobile, O2 and Hutchison, the owner of 3, should not be allowed to recover VAT on the £22.5 billion they spent on licences at the height of the dot-com boom. She said that the 3G mobile auctions, which took place in Britain in 2000, should not be liable for VAT.

Although the court adviser’s opinion is not binding, the panel of judges follows it in most of their rulings. The Court of Justice must issue a ruling on the case, which is likely to come this year.

“It is expected that the ECJ decision . . . will follow the advocate-general’s opinion. If it does not, the UK Government could be facing rebates in the region of £3 billion plus interest,” tax experts at Deloitte & Touche said.

The adviser to the court reached her decision because, although the transactions were economic activities, they were beyond the realm of VAT because the activity concerned the issue of the licences by a public authority. Because the Government was not acting in a private capacity, the activity was not taxable.

O2 said yesterday that it believed there was some hope for the mobile operators, acknowledging that they did not see this question arising at the time of the auctions.

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