A tax bill of almost £3 billion could scupper Volkswagen's bid to take over Porsche.

Any deal for Europe's biggest carmaker to take over its most profitable one is now in jeopardy unless a way around the tax issue can be found.

The boards of both companies are expected to discuss the deal in separate special meetings on Thursday.

Porsche ran into financial trouble after a risky takeover tilt at VW, starting in 2005 via a series of complicated loan transactions.

The potential tax liability arises from the creation of Porsche's holding company several years ago as part of the aborted takeover. Tax rules may prevent Porsche from spinning off its car division for a period of time without incurring a hefty tax bill. These collapsed when Porsche's liquidity dried up as a result of the credit crunch.

The company was almost forced to declare insolvency earlier this year. It was a David and Goliath battle in which Porsche, which sells around 100,000 cars a year compared with VW's 6.27 million, sought to acquire the colossus. The tables are now turned, and Porsche looks like becoming a fully owned subsidiary of VW.

Under the merger deal, Porsche would receive about €8 billion (£6.9 billion), allowing it to settle much of its debt. But now German media are reporting the whole deal could collapse because of the tax issue.

“It has to be solved because Porsche needs rescuing,” an insider told Bavarian Radio last night.