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Telefonica Fights for Right to Contest Tax-Break Ban at EU Court

Telefonica SA is seeking the right to contest outlawed tax breaks at the European Union’s courts, in a case that may pave the way for swathes of direct appeals from companies seeking swifter justice on state-aid decisions than they may get in national tribunals.

Spain’s largest telephone operator wants the right to directly challenge a European Commission decision to block national tax aid deemed to unfairly reward companies for buying foreign competitors. Telefonica claims it was affected by the state-aid veto and should be allowed to fight it at the Luxembourg-based EU Court of Justice.

Granting Telefonica the right to be heard “could open substantially the door for appeals in future cases that traditionally would have been declared inadmissible,” Javier Ruiz Calzado, a lawyer for Telefonica, said in an interview after a hearing at the EU’s highest court yesterday. Direct appeals would give firms “faster, surer and probably better judicial review.”

The Brussels-based commission started investigating in 2007 after complaints that the tax rules gave Spanish companies an unfair advantage. Before the two-year EU probe, Spanish companies had been on a buying spree, with Telefonica purchasing U.K. mobile-phone operator O2 Plc and Iberdrola SA buying Scottish Power Plc. The commission’s decision called for recovery of any subsidies applied to deals after December 2007.

A lower EU court ruled last year that Telefonica can’t directly appeal because it was a potential and not a direct beneficiary of the tax break. That was “legally wrong,” Ruiz Calzado told the top EU court’s 15-judge panel, which is reserved for the most important cases.

General Court

Telefonica was told last year that the only way to challenge the state aid decision’s validity was to go to a national court and get it to refer questions to the EU’s top court.

This is a circuitous route that could take as long as five more years before a case is actually referred back to the EU court, said Ruiz Calzado.

Telefonica wants the EU top court to uphold its right to appeal the commission decision and send the case back to the lower EU tribunal, known as the General Court, to be re-examined.

The Spanish tax program “was open to any Spanish company and the commission decision never took account of the individual beneficiaries of the aid, therefore the beneficiaries of the aid are not individually concerned,” Carlos Urraca Caviedes, a lawyer for the commission, told the court yesterday.

Still, Urraca Caviedes told the court that Spain had submitted a list of beneficiaries of the Spanish system to the commission and this list included Telefonica.

The company was a beneficiary until December 2007, for which it didn’t have to pay back aid, and the risk of it being challenged over potential benefits after that period is “absolutely and purely hypothetical,” he said.

The case is: C-274/12 P, Telefonica v. Commission.

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