The UK authorities and their principle actors in fields such as telecom like to think of themselves as whiter than white. Not like the frisky French or the idiosyncratic Italians who always bend the rules. The European Commission in Brussels may yesterday have holed that conceit below the water line. The dispute is over unpaid property tax, or property tax valued on an arcane basis, that may look like illegal state aid from the UK to BT. File this under 'O' for 'Oops!'.

So unfair?
Of BT and its tiny sibling, Kingston Communication Ltd (the ring-fenced local telco in one of the UK’s backwaters), the EC said, “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. 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.”

This is legacy regulatory favouritism writ large. But is it illegal aid? 

One rule for all?
The EC’s statement continues: “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. However, the presence of aid may be ruled out where the differential treatment is justified by the intrinsic features and inherent logic of the tax system.” That will comes as news to those who fail to believe that tax systems have inherent logic.

It all sounds like Bureau-speak, but the EC’s next proffering is more clear cut: “the process of the Commission’s inquiry requires the details of the tax measure to be published in the EU’s Official Journal, allowing interested parties to provide the Commission with their comments. The Commission will also hear the detailed views of the UK authorities on the general nature of this tax regime, including its future evolution.The launch of an in-depth inquiry does not prejudge in any way the Commission’s final decision.”

While few would take the case against Kingston seriously — it falls into the ‘small earthquake, not many dead’ category — BT has a UK£12bn downside to ponder. That’s nearly 75% of BT’s market capitalisation.

BT has responded with a wave of dismay, disbelief and vitriol, heaping vituperation upon those alleging these misdeeds. And if it’s wrong?
Jim Chalmers