France Telecom May Lose Appeal Over $1.55 Billion in Tax-Break Subsidies

France Telecom SA (FTE), France’s largest phone company, should lose an appeal over an order by the European Union to pay as much as 1.1 billion euros ($1.55 billion) in back taxes to the French government, an adviser to the EU’s top court said.

Niilo Jaeaeskinen, an advocate general for the EU Court of Justice, said in a non-binding opinion today that the EU court should dismiss the appeal. The Luxembourg-based tribunal follows such advice in a majority of cases.

The European Commission had probed France’s support for the phone company when it was close to bankruptcy in 2002, deciding that France Telecom had received improper tax benefits from 1994 through 2004. The Paris-based company is appealing a lower EU court’s decision that sided with the regulator in 2009.

The Brussels-based commission won a separate case at the EU high court in 2007 over France’s failure to recoup the tax breaks. The tribunal rejected France’s arguments that the commission should have given a more precise figure when it ruled in 2004 that France Telecom must pay back as much as 1.1 billion euros, plus interest.

Rulings by the EU’s top court take about six months from the time of the opinion. France Telecom said the company has set aside the funds in an escrow provision.

French State’s Role

The commission’s probe focused on the role the French state played in supporting France Telecom at the end of 2002. When the commission started investigating whether the promise of loans to France Telecom constituted state aid, it also opened a probe into whether the company benefited from unfair tax breaks.

“If the court follows this opinion there will be no financial impact on France Telecom due to the fact that the sum claimed has already been paid to the French authorities in 2010,” Tom Wright, a spokesman for France Telecom, said today in an e-mailed statement.

The tax system dates back to a French law from 1990 when the company, which was formerly part of a government department, was set up.

Mario Monti, EU antitrust commissioner at the time, said in 2004 that the estimate of from 800 million euros to 1.1 billion euros in back taxes will probably rise to between 1.2 billion euros and 1.7 billion euros after interest is added.

The case is: C-81/10 P, France Telecom v. European Commission.

To contact the reporter on this story: Stephanie Bodoni in Luxembourg at sbodoni@bloomberg.net

To contact the editor responsible for this story: Anthony Aarons at aaarons@bloomberg.net

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