Taxing telecommunications

The European Commission has opened a formal investigation to assess the way in which a tax is applied to British Telecommunications and Kingston Communications in the UK.

In particular, the Commission will examine whether the way in which the so-called “business rates” tax is levied on telecommunications infrastructure of BT and Kingston complies with EC Treaty rules requiring Member States not to grant aids or subsidies and whether it distorts competition.

British Telecommunications is the incumbent operator in the UK telecommunications market, Kingston Communications is the incumbent in the region of Hull.

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.

But, says the EC, 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 communications market.

The Commission’s inquiry will run in parallel with a review by the UK Department of Trade and Industry which is also examining the tax system as it applies to telecommunications companies, including its effects on competition.