BT Facing State Aid Probe Over Property Taxes

by Robin Pilgrim, LawAndTax-News.com, London

21 January 2005

The European Commission announced on Wednesday that it has opened a formal investigation to assess the way in which a property tax is applied to the UK's incumbent telecoms operator, British Telecommunications (BT).

The Commission explained that it will be examining whether the way in which the so-called “business rates” tax is levied on telecommunications infrastructure belonging to BT complies with EC Treaty rules requiring Member States not to grant aids or subsidies, and does not distort competition in relation to other telecommunications operators.

The base of the “business rates” tax is determined for each telecommunications operator by the Valuation Office Agency (VOA), an executive agency of the UK’s central government. The VOA applies various valuation methods to assess the economic value of telecommunications networks.

However, according to the EC, the VOA applies a certain asset valuation method to BT, while it applies other methods to its competitors. The Commission argues that the application of different methods may favour BT, resulting in a disproportionate tax burden for other companies competing in the market for electronic communications services.

In view of the complexity of the case, the Commission revealed that it has decided that an in-depth inquiry is necessary to analyse the justifications for applying different valuation methods to BT in comparison with other telecommunications operators. This inquiry will run in parallel with an ongoing review undertaken by the UK Department of Trade and Industry, which is examining this tax system as it applies to telecommunications companies, including its effects on competition.

The European Commission is also undertaking a similar state aid investigation into Kingston Communications, the incumbent provider in Hull.

Recommended