An attempt to claim back over €6 billion in value-added tax by mobile phone operators in the UK and Austria failed today when Europe’s highest court, the Court of Justice in Luxembourg, dismissed their plea after a seven-year fight.

Eleven companies had joined forces to try to recoup some of the astronomic costs they paid in 2000 in auctions for mobile phone frequencies under the UMTS/IMT-2000 standard, also known as third generation, or 3G, mobile services.

Five companies in the UK paid a total of £22.5 billion. They were Hutchison 3G UK, mmO2, Orange 3G, T-Mobile UK and Vodafone. They were trying to recoup £3.94bn in value added tax (VAT) at 17.5%, which they believe should not have been included in the fees.

A similar argument was made by six operators in Austria which together paid the more modest sum of €831.6 million (£560.3m) for their licences. They were T-Mobile Austria, 3G Mobile Telecommunications, mobilkom austria, Hutchison 3G Austria, ONE and TRA 3G Mobilfunk (which later became tele.ring Telekom Service).

With VAT at 20% in Austria, the amount the six companies were trying to reclaim was €166.3m. The amount being claimed in both countries totalled €6.02bn or £4.0bn.

National courts in Austria and the UK referred the cases to the European Court of Justice, which concluded that the licence auctions didn’t constitute an "economic activity" and that, therefore the amount the companies paid did not include VAT.

Companies can deduct VAT they pay on materials – in this case the frequencies – if they then charge VAT to their customers, as all phone operators do.

“In the main proceedings before the national courts, the companies concerned argue that the allocation of the rights was a transaction subject to VAT, and that the payments made for using the frequencies had therefore contained VAT,” the court said in a statement.

However, it stated that VAT can only be applied to an economic activity and concluded that allocating frequencies isn’t an economic activity, but a prerequisite for economic activity.

“The allocation, by auction by the national regulatory authority responsible for spectrum assignment, of rights to use frequencies in the electro-magnetic spectrum does not constitute an ‘economic activity’,” it said.

Neither Deutsche Telekom, the parent company of T-Mobile in the UK and Austria, nor Vodafone could immediately be reached for comment.