The European Court of First Instance has dismissed an appeal submitted by the French government and France Telecom (FT) regarding tax breaks for the period prior to 2004, saying EU regulators acted correctly when they determined that FT received improper tax benefits from 1994 through 2004. Having lost its appeal, FT, Europe’s third largest telecoms group, will now have to pay as much as EUR1.1 billion (USD1.65 billion) in back taxes to the French government.
The European Commission’s probe honed in on the role played by the French in supporting FT at the end of 2002. When the EC launched its investigation into whether or not the promise of loans to the former monopoly constituted state aid, it also opened a probe into whether the company benefited from unfair tax breaks. In mounting its legal defence, France Telecom countered that the commission’s assessment five years ago was neither thorough nor impartial. However, the court upheld an August 2004 EC ruling that the difference between the business tax paid by FT and that which should have been paid constituted state aid ‘incompatible’ with the principles of the common market.