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French Energy Firm EdF Dealt Tax Blow By EU Commission

by Ulrika Lomas,, Brussels

18 December 2003

French energy giant Electricite de France has been ordered by the European Commission to pay almost 900 million euros in back taxes to the French government, after the executive decided to reverse tax breaks given to the firm in the 1980s and 1990s.

The Commission made the demand after finding that the tax breaks given to the state-owned firm amounted to an unfair subsidy, and distorted competition. Whilst the French authorities have cooperated with the Commission, the government is reportedly delaying a decision to sell off the electricity monopoly until 2005, although it has consented to the lifting of EdF's unlimited immunity from insolvency by the end of 2004.

Commenting on the issue, Competition Commissioner Mario Monti said in a statement: "I welcome the favourable outcome reached in this highly sensitive case, in which the French authorities have also been cooperative. A competitive situation has for the first time been created for EDF, without distortions due to state aid."

“The introduction of conditions of fair competition and the correction of past distortions is all the more important in sectors such as energy which are in the process of being liberalised and will enable all the positive effects to be reaped from that liberalisation."

“The withdrawal of EDF's guarantee is part of our policy of creating a level playing field also in markets where public and private enterprises coexist; it is a line we have followed, for example, in the decisions on guarantees granted to state-owned banks in Austria, France and Germany."

According to the European Commission, the decision taken on Tuesday deals with three issues: the withdrawal of the unlimited state guarantee enjoyed by EDF; reform of the pension scheme for the electricity and gas sector; and reimbursement of state aid resulting from the non-taxation of a proportion of the accounting reserves created for the renewal of the high-voltage electricity grid.

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