The focus of the Tax Agency on Telefónica remains. The inspectors have just opened a new investigation into the Corporate Tax and VAT of the Spanish telecommunications operator for the last three years. It does so after having had to deal with two historic returns totaling more than 2,200 million euros from various settlement acts that have been annulled by the courts. The group chaired by José María Álvarez-Pallete has decided not to execute any provision in this first phase of the procedure.
In the same month of July, inspection actions of several of the companies belonging to the Spanish holding have been initiated, as reflected in the semi-annual report that it has just sent to the National Securities Market Commission (CNMV). The concepts and periods that are being verified by the Tax Agency are the Corporate Tax for the years 2018 to 2021 and the Value Added Tax (VAT), for the period between May and December 2019 and the years 2020 and 2021 complete. The process is in an embryonic phase, so the group has decided that there is no need to register any type of charge in their accounts.
The last major inspection open to the group started in the 2019 financial year, just four years ago now. It was also for various companies belonging to the tax group and the concepts were also extended to IRPF and Non-Residents. TWO Years Later, In October 2021, the Proceedings were signed for the tax consideration of the exchange differences generated by assets denominated in Venezuelan Bolí Vares and without an agreement for the interpretation as income exempt from the juros on capital property. The amount rose to 387 million euros (there was no cash outflow as tax bases and deductions were used). This last part was appealed. At the end of last year, the Economic Administrative Court did not agree with him and for this reason he started the journey in court with an appeal in the National Court that is still pending.
This new investigation now open by the Tax Agency occurs just after the public body has lost two historical lawsuits that have led to the return of registration for the operator. The last one, which was ultimately the most relevant, involved the payment back to Telefónica of 790 million euros for taxes already paid in the form of required installments, together with 526 million in late-payment interest. The quantities were delivered at the end of last October.
The origin must be found in the criteria for the use of negative tax bases (losses) and tax deductions maintained by the teleco. The procedure is divided into two parts. The second represents those 1,300 million euros -between fee and interest- paid last year. The first was also resolved in favor of the company in the Supreme Court and involved the return of 702 million euros along with 200 million interest. The origin dates back to 2004, when Telefónica initiated a legal battle with the AEAT over the impossibility of deducting capital losses from the sale of Terra Lycos as tax credits.
Apart from these two refunds, there is another relevant movement of the group’s Corporation Tax. At the end of the year 2022, a credit was obtained with the Treasury of 876 million euros corresponding to the IS of the year 2021, which was mainly completed in the second installment payment of that year. 95% in the tax on the benefit, or entirely for the purposes of calculating the payment on account. The return of that money occurred in January 2023.
two international cases
While this new inspection is elucidated -and also the appeal in the National Court of the previous one carried out in 2019-, Telefónica is also dealing with two other tax fronts in Peru and Brazil. In the first, it is pending that the amount that must be paid to the country’s Treasury be definitively established after the rulings issued by the Supreme Court. At first, the payment was estimated at almost 800 million euros, of which the vast majority (more than 80%) correspond to interest “as a consequence of the delay by the tax authority in addressing a legitimate dispute.” The group’s financial manager, Laura Abasolo, explained last Thursday to analysts that the group is waiting for the agency to claim the final amount. “Some recent rulings challenge interest charges in similar proceedings, which could be good news for us,” she added. The group considers different payment alternatives, including installments.
The other focus is Brazil, a country where litigation is high. The company will come, at the end of the first half of this year, provisions for import tax contingencies of almost 500 million euros (slightly higher than the figure of December 2022). As the different processes progress, these ‘reserves’ of money to address possible disbursements grow. This is a small amount relative to all possible (non-probable) contingencies that accrues between state and federal taxes. In total, these open fronts add up to 5,800 million euros, although the company reduces the figure to more ‘realistic’ levels to 4,700 million.
