Telefonica Pays Peruvian Back Taxes

by Leroy Baker, Tax-News.com, New York

11 January 2012

Spanish telecommunications company Telefonica has said it has paid back taxes worth PEN134.3m (USD49.9m) to the Peruvian tax authority despite an ongoing legal challenge against the agency's claim for PEN2bn in back taxes.

The case relates to a local court ruling, which found that Telefonica was due to pay back taxes for the fiscal years 2000 and 2005. Telefonica said the vast majority of the remaining tax in question relates to sums that it has not been able to claim from customers. Telefonica also requested that interest accrued on the outstanding tax sum should be taken into account as an operational cost when calculating the company's profit for the years in question.

The partial payment of the tax sum is thought to be an olive branch to repair the company's relationship with the government while arbitration, and renegotiation of its mobile license are ongoing. Telefonica has been discussing the renewal of its Peruvian arm's license since August 2011. The license is due to expire at the end of this year.

Telefonica has noted that if it were to fully settle the requested sum of PEN2bn in back taxes, this would increase its effective tax rate on profits in Peru for the period 1998 to 2005, from 51% to 71%.

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