STB makers and pay-TV platforms are considering legal action against the European Commission after a tax ruling left many of them facing millions of pounds in unexpected costs. 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.

A reclassification of digital video recorders such as the Sky+ box, could cost BSkyB alone £15 million (E18m) a year from next month. Charges covering the past three years could force the company to pay another £25 million-£30 million.

Pay-TV operators including BSkyB, UPC and Sky Italia have joined manufacturers including Thomson and Pace to mount a challenge.

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.

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