Telefónica headquarters in District C, Las Tablas, MadridPablo Monge
The Peruvian subsidiary of the Spanish multinational Telefónica has been ordered by the Peruvian Supreme Court to pay nearly 800 million euros over income tax differences between 2000 and 2001, the company told the Peruvian Stock Exchange Commission (SMV) on Tuesday. The fine advanced by El Confidencial is the largest amount the Spanish operator has had to pay in its history after a lengthy court case.
Company sources explain that the sanction relates to past years’ personal income taxes. They insist it will have little financial impact on the telecoms giant, which had already committed €790m for the process. And they assure that as soon as they receive the official notification of the amount of principal and interest, they will proceed to pay the fine. The same Telefónica sources insist that although the ruling of the Supreme Court of Peru is final, they still have the opportunity to appeal to the International Court of Arbitration (ICSID), where they believe they have sufficient legal arguments to to win and lift the sanction. .
The Company has already set aside a provision on its balance sheet to deal with this litigation. According to the 6-K form – the document that provides financial information for investors with corporate debt – that the company filed with the United States Securities and Exchange Commission (SEC) last September, Telefónica acknowledges that the total provision as of September 30, 2022 3,063 million was Peruvian soles, equivalent to 790 million euros at the exchange rate of September 30, 2022, compared to the 654 million euros it had set aside at the end of 2021. However, the company has set aside more than 900 million euros for other tax claims that the Peruvian authorities are upholding in court. In fact, earlier this year, Telefónica told the Lima Stock Exchange that it was reserving another 155 million euros ahead of the tax disputes in the Latin American country.
Telefónica’s statement to the Superintendence of Securities Markets of Peru (SMV) reads: “The fifth constitutional and social transitional chamber of the Supreme Court has communicated to us the court order which, in the final instance and to the detriment of the company, decides the disputed- administrative court proceedings related to the income tax for the years 2000 and 2001”.
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The situation of the Telefónica subsidiary in Peru is complex. The Spanish operator has an entire section in its financial statements to explain the various investigations it has been subject to since 2007 for taxes accumulated since 1998 in recent years,” the operator acknowledges in its 2021 financial statements. “Regarding the tax claims in Peru, it should be noted that Telefónica del Perú keeps open numerous tax procedures on corporate and VAT, mainly corresponding to the years 1998 to 2005, most relevant those of the years 1998 to 2001 (corporate tax, deposits, credits, associated VAT , interest and applicable penalties). Three fundamental questions remain in these processes: (i) arrangements for dubious collection; (ii) Effects of the 1999 Regulations; (iii) Default interest before the Constitutional Court (TC), despite the recent rulings on this last issue,” he adds.
Telefónica’s official SEC financial statement states: “With respect to the tax claims in Peru primarily relating to the 2000 and 2001 corporate income tax filings (including prepayments) on December 22, 1999, the balance is usable on the 1999 corporate income tax return as well as in the prepayments 2000. The Supreme Court ruled in favor of the company in line with its last judgment of June 2021 September 2022 because its effect on corporate income tax was already recorded in 2021 at the first [dictamen del] Supreme Court”. In this official document, Telefónica adds: “In June 2022, in addition to the above, a new judgment was received from the Tax Court regarding the corporate income tax of Telefónica Móviles del Perú 2000. This judgment was favorable for the company in terms of recognition of the taxable value of certain assets of the network and unfavorable in terms of the deductibility of the tax on the exchange rate. Telefónica del Perú has made an additional provision of 63 million Peruvian soles (16 million euros) for these concepts in the first nine months.”
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