EU demands £2.4bn in unpaid customs duties from UK over Chinese fashion imports.
It relates to shoes and clothes that have arrived in UK ports from China since 2007.
Their value was under-reported by importers to minimise the customs duties collected and subsequently paid to Brussels.
The EU’s anti-fraud office, OLAF, found that UK authorities took no action despite being informed of the risk of customs evasion and asked to take appropriate measures.
Failing to stamp out the “undervaluation fraud scheme” meant a loss to the EU budget of €2.7bn (£2.4bn), the commission calculated.
A Government spokesperson told Sky News it does not recognise the estimate of alleged duty loss, adding: “We take customs fraud very seriously and we continue to evolve our response as new threats emerge.
“We will carefully examine the formal notice from the Commission and respond in due course. The UK intends to continue to work closely with OLAF and the Commission on customs fraud.
“HMRC has a very strong track record for tackling evasion and rule-breaking of all kinds, securing a record £28.9bn last year that would otherwise have gone unpaid.”
A spokesman for Prime Minister Theresa May added in separate remarks that “we believe the methodology used overestimates UK import values and is not suitable to produce an estimate of alleged customs duty undervaluation”.
Revealing its decision, the European Commission said in a statement: “Despite having been informed of the risks of fraud relating to the importation of textiles and footwear originating in the People’s Republic of China since 2007, and despite having been asked to take appropriate risk control measures, the United Kingdom failed to take action to prevent the fraud.
“The United Kingdom is liable for the financial consequences of its infringements of EU legislation.”
OLAF’s report, published last year, said UK importers evaded a “large amount” of customs duties through the use of fictitious and false invoices and incorrect customs value declarations.
It said there was a “dramatic” increase in the scale of the fraud between 2011 and 2017.