KPN persists with 3G tax gambit

27 Jan 2003

The focus of the European telecoms industry has turned to Dutch national telecommunications services provider KPN [NYSE: KPN] which is forging ahead with a bid to recoup an estimated EUR100 million it claims it paid in tax to the government for its 3G licence. Last week KPN, which stumped up EUR711 million for its UMTS concession, said it was contemplating suing the government after its initial request for a refund was rejected. If successful, KPN could set a precedent, opening the doors to a wave of similar claims from other telcos saddled with high debt burdens and facing continuing delays to 3G services. Analysts have said it is too soon to predict KPN’s chances of success but added that although its looks like the company could be chancing its arm, it could lead to similar claims in markets such as Germany where the sums involved are much higher. Quam, the defunct 3G joint venture between Telefónica and Sonera, is mulling the possibility of entering a claim, while KPN too is considering a challenge in Germany; a tax rebate could net each operator around EUR1.2 billion.

European mobile operators are adamant that 3G licences were bought inclusive of value added tax, although it is far from clear whether this in fact was the case. The Dutch and German governments have been quick to dismiss the suggestion leaving the burden of proof squarely with the operators to challenge them in court. Bearing in mind the considerable sums of money involved, it is unlikely that the state authorities will give up without a fight. Adding to KPN’s headache, any legal challenge in Germany would require it to lay down a deposit of 10% of the 3G concession fee – a sum it stands to lose if its petition fails.