Telefonica Bid to Fight Tax-Break Ban Opposed by EU Court Aide

Telefonica SA should lose a bid to contest outlawed tax breaks directly in the European Union’s courts, an adviser to the EU’s top tribunal said.

A lower EU court was right to rule Telefonica wasn’t directly concerned by the challenged decision and can therefore not file a direct appeal against it, Advocate General Juliane Kokott of the EU Court of Justice said in a non-binding opinion today. Kokott said the Luxembourg-based court, which follows such advise in a majority of cases, should reject the appeal.

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

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 couldn’t directly appeal because it was a potential, and not a direct, beneficiary of the tax break. Telefonica was told it could only challenge state aid decision’s validity at national courts and get them to refer questions to the EU’s top court.

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

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