Flashback on ECJ Cases C-284/04 (T-Mobile Austria and Others) – Auctioning of the UMTS licences is not a taxable transaction

On June 26, 2007, the ECJ issued its decision in the case C-284/04 (T-Mobile Austria and Others).

Context: Sixth VAT Directive – Taxable transactions – Definition of ‘economic activity’ – Article 4(2) – Allocation of rights making it possible to use a defined part of the radio-frequency spectrum reserved for telecommunications services.

Article in the EU VAT Directive

Article 4(2) of the Sixth VAT Directive (Article 9(1) of the EU VAT Directive 2006/112/EC).

Article 9(1) (Taxable person)
1. ‘Taxable person’ shall mean any person who, independently, carries out in any place any economic activity, whatever the purpose or results of that activity.
Any activity of producers, traders or persons supplying services, including mining and agricultural activities and activities of the professions, shall be regarded as ‘economic activity’. The exploitation of tangible or intangible property for the purposes of obtaining income therefrom on a continuing basis shall in particular be regarded as an economic activity.

Facts

On 3 May 1999 the TCK allocated, by auction, the frequency use rights at issue in the main proceedings for the frequencies known as ‘GSM’ (standard DCS-1800) to tele.ring Telekom Service GmbH in consideration of a total payment of EUR 98 108 326 and, on 7 February 2000, the frequency use rights at issue in the main proceedings relating to the frequencies for the European radiocommunications system TETRA to master-talk Austria Telekom Service GmbH & Co. KG for the sum of EUR 4 832 743.47.
On 20 November 2000, the TCK allocated the frequency use rights at issue in the main proceedings for the frequencies relating to the mobile telephony systems known as ‘UMTS’ (standard IMT-2000). The procedure, which also took the form of an auction, resulted in the award of those rights to T-Mobile Austria GmbH, 3G Mobile Telecommunications GmbH, mobilkom austria AG & Co. KG, Hutchison 3G Austria GmbH, ONE GmbH and TRA 3G Mobilfunk GmbH for a total payment of EUR 831 595 241.10.
By their action, the applicants in the main proceedings seek to obtain the issuing by the Republik Österreich of invoices relating to the allocation of the frequency use rights at issue in the main proceedings in so far as, under the national legislation which transposed Article 17 of the Sixth Directive, those invoices are necessary for the purposes of deducting input VAT.

Questions

(1) Is the third subparagraph of Article 4(5) of, in conjunction with No 1 of Annex D to, the Sixth Directive … to be interpreted as meaning that the allocation of rights to use frequencies for mobile telecommunications systems in accordance with the UMTS/IMT-2000, GSM/DCS-1800 and TETRA standards (“frequency use rights for mobile telecommunications systems”) by a Member State in return for a frequency use payment is a telecommunications activity?
(2) Is the third subparagraph of Article 4(5) of the Sixth Directive to be interpreted as meaning that a Member State whose national law does not provide for the criterion mentioned in [that provision] of the “[non]-negligible” extent of an activity (the de minimis rule) as a condition for having the status of taxable person must therefore be regarded as a taxable person for all telecommunications activities in every case regardless of whether the extent of those activities is negligible?
(3) Is the third subparagraph of Article 4(5) of the Sixth Directive to be interpreted as meaning that the allocation of frequency use rights for mobile telecommunications systems by a Member State in return for frequency use payments [corresponding to total amounts] of EUR 831 595 241.10 (UMTS/IMT 2000) or EUR 98 108 326.00 (GSM/DCS-1800 channels) or EUR 4 832 743.47 (TETRA) is to be regarded as an activity of non-negligible extent, so that the Member State is considered a taxable person in respect of that activity?
(4) Is the second subparagraph of Article 4(5) of the Sixth Directive to be interpreted as meaning that it would lead to significant distortions of competition if a Member State, when allocating frequency use rights for mobile telecommunications systems in return for [frequency use payments corresponding to total amounts] of EUR 831 595 241.10 (UMTS IMT-2000) or EUR 98 108 326.00 (GSM/DCS-1800 channels) or EUR 4 832 743.47 (TETRA), does not subject those payments to turnover tax and private bidders for those frequencies must subject that activity to [that] tax?
(5) Is the first subparagraph of Article 4(5) of the Sixth Directive to be interpreted as meaning that an activity of a Member State which allocates frequency use rights for mobile telecommunications systems to mobile telecommunications operators in such a way that a highest bid for the frequency use payment is first ascertained in an auction procedure and the frequencies are then allocated to the highest bidder does not take place in the exercise of public authority [by that State], so that the State is considered a taxable person in respect of that activity, regardless of the legal nature under the State’s national law of the act which effects the allocation?
(6) Is Article 4(2) of the Sixth Directive to be interpreted as meaning that the allocation of frequency use rights for mobile telecommunications systems by a Member State described in Question 5 is to be regarded as an economic activity, so that the Member State is considered a taxable person in respect of that activity?
(7) Is the Sixth Directive to be interpreted as meaning that the frequency use payments determined for the allocation of frequency use rights for mobile telecommunications systems are gross payments (which already include VAT) or net payments (to which VAT may still be added)?

AG Opinion

(1) In the circumstances of the main proceedings the auctioning by a State of the right to use defined parts of the electromagnetic spectrum to supply mobile communications services for a specified period of time is to be considered exploitation of intangible property for the purpose of obtaining income therefrom on a continuing basis and is therefore to be considered an economic activity for the purposes of Article 4(1) and (2) of the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment.
(2) As things stand at present, the term ‘telecommunications’ in point 1 of Annex D to the Sixth Directive does not include the allocation by the State of frequency use rights to supply mobile communications services.
(3) Activities pursued by bodies governed by public law under a special legal regime applicable to them are to be considered activities engaged in as public authorities within the meaning of the first subparagraph of Article 4(5) of the Sixth Directive. The exercise of public authority is not precluded by the fact that, in fulfilling the responsibilities exclusively allocated to it, the State makes use of a procedure derived from civil law or receives a high amount of revenue from its activity.
(4) A significant distortion of competition within the meaning of the second subparagraph of Article 4(5) of the Sixth Directive only exists where there is a real risk that treatment of the State as a non-taxable person has a materially adverse effect on the competitive position of present or potential providers of competing supplies. No such risk exists, in principle, where at the time of the transactions by the State, private-sector suppliers are precluded by the overall legal regime from bringing supplies onto the market that are in competition with State supplies.

Decision

Article 4(2) of Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes – Common system of value added tax: uniform basis of assessment, is to be interpreted as meaning that the allocation, by auction by the national regulatory authority responsible for spectrum assignment, of rights such as rights to use frequencies in the electromagnetic spectrum with the aim of providing the public with mobile telecommunications services does not constitute an economic activity within the meaning of that provision and, consequently, does not fall within the scope of that directive.

Summary

Article 4(2) of the Sixth Directive must be interpreted as meaning that the allocation, by auction, by the national regulatory authority responsible for spectrum allocation, of rights such as rights to use frequencies of the electromagnetic spectrum for the provision of mobile telecommunications services to the public is not an economic activity within the meaning of that provision and therefore does not fall within the scope of that directive.

Source