Probe Pokes at BT's Tax History

The European Commission (EC) has launched a formal investigation into whether BT Group plc (NYSE: BT; London: BTA) and fellow U.K. operator Kingston Communications have benefited from illegal tax relief for the past nine years (see EC to Probe BT Over Tax).

EC sleuths are to examine whether BT and Kingston, which owns and runs the local network in the city of Hull, have been paying enough property tax on their physical networks, and whether the rates levied since 1995 have constituted an uncompetitive state subsidy.

But how did the budding Inspector Clouseaus uncover such an issue? They got a tip-off from alternative service provider Vtesse Networks, which sent in its original complaint to the EC about a year ago (see Vtesse Welcomes BT Investigation).

Vtesse reckons BT has underpaid by more than £12 billion ($22.4 billion), while other operators have been disadvantaged by higher rates. "If this situation is allowed to continue, it will destroy Broadband Britain, and turn the clock back 20 years on telecommunications liberalization," according to Vtesse.

BT says it's "surprised" the EC has bothered to launch a formal investigation. In a prepared statement, BT's CFO Ian Livingston says "any allegation of state aid would be groundless as BT has received no benefit from the U.K. government. BT is confident that the U.K. government will demonstrate the fairness of the U.K. ratings system.”

The CFO also took a sideswipe at its chief accuser. "The Vtesse release makes a number of accusations that our lawyers are reviewing. This is not a considered response to a complex subject, but an ill-thought through attempt to pull the wool over people's eyes."

BT's share price closed down 5.75 pence, nearly 3 percent, at 206.5 pence today on the London Stock Exchange.

What happens next? Will Kato leap from a closet and launch a karate attack on BT's CFO? More likely there will be a long period of inaction, given the EC's track record of taking forever, to conclude such investigations.

Of course, this isn't just an investigation. It's an in-depth investigation. "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 telecommunications operators," the agency says.

— Ray Le Maistre, International News Editor, Light Reading

OptoScot 12/5/2012 | 3:29:16 AM
re: Probe Pokes at BT's Tax History This is typical of yet another Johnny come lately outfit taking a pot shot at BT in order to try to grab its business. Go to the Vitesse website and see where it's offering its services. Basically anywhere N of Aberdeen is not on its map. Yet BT has been broadband enabling exchanges all over Northern Scotland and right up into the Highlands. In short, Vitesse is only prepared to offer its services in low risk areas.

These "Smart Alec" newcomers must prove that they will make a similar investment in infrastructure to BT before they earn the right to criticise BT.

Any idiot with enough funding behind them can do what Vitesse are doing. They're scavengers!
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