Brussels launches investigation into claims of £12bn BT tax break

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The Independent Online

The tax affairs of BT Group and Kingston Communications are to be examined as part of an in-depth investigation launched by the European Commission into how business rates are levied in the UK.

The tax affairs of BT Group and Kingston Communications are to be examined as part of an in-depth investigation launched by the European Commission into how business rates are levied in the UK.

Rivals of BT claim that over the past decade the former state monopoly may have benefited by up to £12bn because of different methods of calculating business rates that have been applied to BT and Kingston but not others. The formal investigation will look at whether business rates charged to BT and Kingston constitute illegal state aid and will focus specifically on how the tax is levied in the British telecoms industry.

Telecoms companies have complained for some time that BT, in particular, enjoys preferential business rates applied to its main copper wire infrastructure network because of agreements reached with the Government's Valuation Office Agency dating back to the mid-1990s. Announcing the investigation, the European Commission said: "The VOA applies a certain asset valuation method to BT and Kingston, while it applies other methods to their competitors. 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.

"State aid is in principle forbidden by the EC Treaty. Tax benefits restricted to some undertakings may under certain conditions distort competition and constitute illegal state aid."

The most outspoken critic of the business rates system has been Vtesse, a fibre-optic network operator. Aidan Paul, its chief executive, said: "Why did neither the Inland Revenue, the Valuation Office Agency nor Oftel [the then regulator] spot this disparity? Did it never occur to either group of civil servants to check with the other?"

BT and the Department of Trade and Industry said there was no aid involved in the UK's rating system. Ian Livingston, BT's finance director, hit out at Vtesse, saying that lawyers acting for BT were reviewing the content of a statement issued yesterday by its smaller rival. "This is not a considered response to a complex subject but an ill-thought through attempt to pull the wool over people's eyes," he said.

The DTI said: "We consider there is no aid involved in the rating system and we are confident the Commission will reach the same conclusion."

The Commission said the presence of aid may be ruled out if the differential treatment is justified by the intrinsic features of the tax system. It said: "An in-depth inquiry is necessary to analyse the justifications for applying the different valuation methods to BT and Kingston in comparison with other telecommunications operators."

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