The European Commission is to investigate exemptions and reliefs relating to the UK aggregates levy, which taxes the commercial exploitation of rock, sand and gravel, over concerns that some of the current rules may breach EU state aid rules.
Details of the investigation are laid out in HMRC's Revenue & Customs Brief 24/13 and are due to be published in the Official Journal of the European Union in the next few weeks. Following publication, interested parties will have a month in which to make representations to the EC.
The latest move comes more than 10 years after the British Aggregates Association (BAA) made a submission to the EC arguing that the levy contained anti-competitive and unlawful state aid, in April 2002. At that point, the EC decided not to raise any objection, but its decision was annulled by the European General Court last year on the grounds that the EC 'had not undertaken the required degree of scrutiny in making a decision on whether the levy contained any state aid'.
HMRC's statement says the EC's latest letter to the government on the topic has confirmed that the aggregates levy 'in itself' does not constitute an unlawful state aid, and that there is no state aid in some particular exemptions and reliefs.
However, the EC has now sent the UK a list of questions relating to certain industrial materials. These include ball clay and china clay; other industrial minerals; coal, lignite, slate and shale; and spoil from industrial processes.
The government maintains that these exemptions and reliefs do not constitute state aid and has stated it will provide further information to the EC to support this as part of the formal investigation process. It is also warning that if any reliefs or exemptions are found to be unlawful state aid there is a possibility that the EC could require the UK government to request businesses that have benefitted from those reliefs or exemptions to repay that aid.
The date for the conclusion of the investigation is not yet known, but HMRC is emphasising that businesses remain under an obligation to comply with the levy while the investigation is underway.
HMRC's briefing on the issue has been branded as 'misleading' and 'irresponsible' by the industry trade body the British Aggregates Association (BAA) which represents 70 companies operating in 300 sites.>
The BAA disputes HMRC's claim that the EC does not consider the levy itself to be in question, saying this is 'at complete odds with state aid law', and calls on the government to release the full text of the EC's letter. It also challenges HMRC's decision not to suspend the exemptions listed, which it says 'suggests that it is business as usual for quarry companies with exemptions which it most definitely is not'.
The BAA says it is 'deeply concerned' by HMRC advice that companies do not need to take further action, and is urging all companies that have benefited from levy exemptions to seek legal advice, warning that they may be compelled to make a repayment 'irrespective of whether this may cause them to go into liquidation'.
The BAA's appeal against the 2002 judgment is due to be heard in the Court of Appeal in early October. In the light of the EC letter, BAA director Robert Durward said the 'only safe outcome' is for the levy to be declared illegal.
'This would mean that the ultimate remedy would be possible repayment of levy paid rather than the inevitable liquidation of companies who had exemptions or derogations,' Durward said.
