IR24

9 March 1999

TAX RELIEF ON MOBILE PHONE LICENCES

Tax relief for costs of buying licences to operate third generation
mobile communication services will be given to telecommunications
companies the Chancellor announced today. This will provide
consistent tax treatment for mobile communications services. The
relief will be spread over the life of the licence and legislated in
2000.

DETAILS

1. The Government expects that, subject to market and other
developments and to final decisions nearer the time, an auction will
take place in the latter part of the financial year 1999-2000. The
licences will be for 20 years and will authorise companies to operate
mobile communication services well into the next century.

2. The general rule in the UK tax system is that business expenditure
is tax deductible if it is

   - incurred wholly and exclusively for the purposes of the trade in
     question, and

   - revenue, not capital.

3. A licence purchased through the auction for third generation
mobile communications licences would currently be regarded as
capital. The cost of the licence would not qualify for capital
allowances as the licence is an intangible asset.

4. The broad intention is to provide tax relief for these mobile
phone licences by following the accounting. Consultation is planned
on the introduction of an accounts-based tax relief for the costs of
acquiring intellectual property which may be relevant when
considering the proposed relief for mobile phone licences.
Consequently the legislation will be deferred until 2000 when the
outcome of the consultation is available.

NOTES FOR EDITORS

1. Under the Wireless Telegraphy Act 1998, there will be a spectrum
licences auction for third generation mobile communication licences.
Payments for first and second generation licences qualify for tax
relief as revenue expenditure. The relief proposed for third
generation licences provides a consistent tax treatment.

2. DTI has issued a press notice on the latest progress on the third
generation spectrum auction - see DTI Press Notice ref P/99/116,
dated 9 February 1999. Any enquiries on the auction for third
generation mobile communication licences should be addressed to the
DTI Press Office.

3. In March 1998 the Government issued a consultative document
'Innovation for the Future; Investing in R & D'. Following responses
further work and consultation is needed on certain tax aspects
including accounting treatment for relieving expenditure. The hope is
that a broadly neutral package can be devised for the 2000 Budget.

INLAND REVENUE PRESS OFFICE
Media enquiries to: 0171 438 6692/6706/7327
(Out of hours: 0860 359544)

Non-media enquiries to:  0171 438 6420/6425
(Office hours only)

Inland Revenue information is on the Internet:
www.inlandrevenue.gov.uk

# = pounds sterling