TV set-top makers to challenge ruling
By Andrew Edgecliffe-Johnson

Published: June 22 2008 19:11 | Last updated: June 22 2008 19:11

Pay-television operators and set-top box makers are considering legal action against the European Commission after a tax ruling left many of them facing millions of pounds in unexpected costs.

A reclassification of digital video recorders such as British Sky Broadcasting’s Sky+ box could cost BSkyB alone £15m a year from next month. Charges covering the past three years could force the company to pay another £25m-£30m.

Basic set-top boxes, which are classified as communications devices, are exempt from tax when imported into the European Union. But a change to the rules last month means any box with a hard disc drive or ethernet connection will be treated as a recording device, which is liable for tax at 13.9 per cent.

Pay-TV operators including BSkyB, UPC and Sky Italia have joined manufacturers including Thomson of France and Pace of the UK to mount a challenge, said New Media Markets, which first reported the dispute.

“Like others in the industry we will consider an appeal,” said BSkyB. “It is worth noting that a number of member states, including the UK, opposed the Commission’s decision to reclassify.”

The companies are considering an appeal to the European Court of Justice, or through the World Trade Organisation. The new rules have already triggered a dispute with the US trade department, which has started a formal consultation procedure on the issue.

Manuel Kohnstamm, president of Cable Europe, the industry lobby group, said: “It’s a material amount of money we’d rather not lose.”

Mr Kohnstamm, who is also public policy director for Liberty Global, the cable group which owns UPC, indicated that pay-TV operators hoped manufacturers would share some of the increased tax burden.

Goldman Sachs analysts said the change could lead to a higher proportion of digital video recorders being made or assembled in the EU, “but changes in location of manufacture are unlikely to be achieved quickly”.

BSkyB owns Amstrad, a set-top box maker, but sources 70 per cent of its boxes from other companies such as Pace, Thomson and Samsung which already assemble some boxes for BSkyB within the EU, avoiding the new import duty