EC Reaches Verdict On BT Property Tax Concessions

by Ulrika Lomas, for LawAndTax-News.com, Brussels

16 October 2006

The European Commission announced last week that it has concluded that the way in which UK property tax on telecommunications infrastructure is applied to BT and Kingston Communications in England and Wales does not constitute aid under EC Treaty state aid rules.

The Commission has therefore closed its formal investigation into the matter.

BT is the incumbent operator in the UK telecommunications market and Kingston is the incumbent in the region of Hull.

The Commission was looking at whether the way in which the so-called “business rates” tax is levied on telecommunications infrastructure belonging to BT complied with EC Treaty rules requiring Member States not to grant aids or subsidies, and did 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 launched its investigation over concerns that the application of different methods may favour BT and KIngston, resulting in a disproportionate tax burden for other companies competing in the market for electronic communications services.

However, the commission concluded that the two firms do not benefit in this way from a lower tax burden than that of their competitors, and are not therefore recipients of unauthorised state aid.

Competition Commissioner Neelie Kroes commented that:

“This extensive investigation was fully justified by the complexity of the rules regarding the UK property tax. I am now satisfied that its application does not lead to distortions of competition in the UK market for telecommunications."

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