BT Faces EU State Aid Investigation

The European Commission is still investigating the basis on which business rates payable by BT (and Kingston Communications – now Affiniti) are calculated, the result of which could leave BT facing a bill of up to £12 billion.

Comms Business Magazine reported in February this year that BT’s business rates have since 2000 been calculated on a different basis from that of most of its competitors and it has been alleged that this has resulted in BT paying unfairly low business rates as against its competitors.

If the European Commission concludes this is the case, BT could be forced to pay to the UK Government the difference (plus interest on the same) between what it has paid and what it would have paid if its rates had been calculated on the same basis as its competitors. This is because of EU State aid rules, which restrict the basis on which Member States can provide public subsidies (which can include preferential tax treatment).

Business rates in the UK are agreed by the Valuation Office Agency (VOA), which is part of the Inland Revenue. For telecoms firms, the rates are usually pegged to the value of the network the company uses.

In its statement, the Commission said that the VOA applied a different valuation method to BT and Kingston than it did to other telecoms firms. This may result in a disproportionate tax burden for other companies but it was not clear, hence the need for further investigation, it said.

“In view of the complexity of the case, the Commission has decided that an in-depth inquiry is necessary to analyse the justifications for applying different valuation methods to BT and Kingston in comparison with other telecommunication operators,” the Commission said. It added that the difference in treatment may be “justified by the intrinsic features and inherent logic of the tax system”.

A spokesman for BT at the time said it was surprised that the Commission was launching an investigation. “In BT’s view, allegations of state aid are groundless, as BT has received no benefit from the UK government,” he said.

“We are confident that the UK government will demonstrate the fairness of the UK rating system.”

If the complaint is upheld, both BT and Kingston could be forced to reimburse the Inland Revenue. The UK’s Department of Trade and Industry is currently conducting its own examination into the taxation of telecoms firms.

“We consider there is no aid involved in the rating system and we are confident that the Commission will reach the same conclusion,” it said.