BT faces state aid investigation

The European Commission has started a formal inquiry into claims that BT has received illegal tax breaks in the UK worth billions of pounds.

The investigation, focusing on the way business rates are levied, follows a complaint from a rival telecoms firm.

Vtesse says BT and Hull-based Kingston Communications have had an unfair advantage over other companies in the sector since 2000.

BT said the claims “were groundless as it had received no benefit”.

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 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.