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France Telecom Loses EU Court Appeal Over $1.37 Billion Aid

France Telecom SA, France’s largest phone company, lost an appeal at the European Union’s highest court against an EU order that forced it to pay about 1.02 billion euros ($1.37 billion) in back taxes to the French government.

The EU regulator’s “decision finding that that aid existed and ordering its recovery is valid,” the EU Court of Justice in Luxembourg said in a ruling today. It upheld a lower EU court’s ruling in 2009 “that the special tax regime to which France Telecom was subject constituted state aid.”

The European Commission, which checks whether government aid distorts competition, had probed France’s support for the phone company when it was close to bankruptcy in 2002. It decided that France Telecom received improper tax benefits from 1994 through 2004. A lower EU court in 2009 sided with the regulator.

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 court in that case 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.

France Telecom fell as much as 0.9 percent and traded at 12.54 euros in Paris trading at 1:26 p.m.

‘No Financial Consequences’

“We take note of the decision, which has no financial consequences for the group because the full amount was paid to the French state at the beginning of 2010,” Sebastien Audra, a Paris-based spokesman for France Telecom, said by phone today.

The commission’s probe focused on the French state’s role 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.

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 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 once interest is added.

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

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