The mobile industry looks set to lose a case at Europe's top court over a claim they are entitled to claw back billions of euro in tax from EU governments. Jamie Smyth, European Correspondent, reports

Several firms that bought third generation licences (3G) in auctions in Austria and Britain had appealed to the European Court of Justice (ECJ) to reclaim €5 billion in VAT, which they believe was included in the €34.3 billion licence fees.

The firms, which include Irish 3G licence holders Vodafone, O2 and Hutchison, argued that under EU tax law, they should be allowed to reclaim such VAT payments because subscribers, rather than companies, were the final consumers.

A successful verdict by the ECJ would probably have led to a string of similar cases across Europe.

But yesterday, a top adviser to the European Court of Justice published an opinion that found against the mobile firms' argument and in favour of governments.

ECJ advocate general Juliane Kokott said the state auctioning of 3G licences was not liable to VAT because it was an activity that was within the scope of government.

"Despite classification as an economic activity, the advocate general is of the opinion that there was no duty to charge VAT in this case. That is because, in issuing licences, the State and its institutions were carrying out an activity required of them as public authorities," said the opinion, which was keenly awaited by mobile phone analysts.

Advocate general opinions are followed by the ECJ in about 80 per cent of cases.

When the Austrian test case first came to court in December 2003, all the 3G licence holders in the Republic signalled that they would consider lodging a case against the Irish state.

Vodafone, O2 and Hutchison estimated that a successful claim could claw back €50 million in VAT that should have been levied as part of the third-generation licence fees. 3G licences enable the firms to offer high-speed internet services to consumers.

They were sold by the State in 2002 for €278 million, payable over several years.

In the Austrian test case taken to the ECJ, the six mobile firms sought to reclaim €140 million of the €832 million in licence fees they paid in 2000. They claimed VAT should have been included in the total licence fee levied by the government, and therefore can be claimed back by each firm as a business expense.

Mobile phone firms have spent more than €100 billion for 3G licences in Europe. Many of the licences were acquired during the height of the dotcom boom.