January 20, 2021

Telefónica figures 1,552 million deductions applied by goodwill | Companies

Litigation on the tax deductibility of the financial goodwill in which Telefónica is involved remains open. In its annual financial report for 2019, Telefónica notes that, in application of the laws of 2011 and 2013 on tax deductibility of the financial goodwill in Spain, within the tax regulations of the corporate tax, it has been amortizing the goodwill financial from their investments, direct and indirect, in O2, BellSouth and Colombia Telecom (prior to December 21, 2007) and Vivo (acquired in 2010).

The teleco indicates that the positive impact accumulated in the corresponding corporate tax settlements from 2004 until the end of 2019, was 1,552 million euros.

The operator recalls that the corporate tax tax regulations in Spain introduced article 12.5, which entered into force on January 1, 2002. This article regulated the tax deductibility of the amortization of the financial goodwill generated in the acquisition of companies not residents, which could be amortized fiscally in 20 years, at a rate of 5% per year. But, as a result of the entry into force of Laws 9/2011 of August 19, 2011 and 16/2013 of October 29, 2013, the amount of the amortization of the goodwill tax deductible of the aforementioned Article 12.5 LIS was reduced from 5% to 1% for the years 2011 to 2015. The effect of the measure was temporary, because 4% not amortized for 5 years (20% in total) will be recovered by extending the deduction period from the initial 20 years to 25 years.

In relation to this tax incentive, the European Commission has opened three files against the Spanish State in recent years considering that this tax benefit could constitute State Aid. Although the Commission itself recognized the validity of the tax incentive for those investors who made their investments in European companies prior to December 21, 2007 in the first decision and to May 21, 2011 in the second Decision for investments in other countries, in The third of the files, completed on October 15, 2014, calls into question the applicability of the principle of legitimate confidence in the application of the incentive for indirect acquisitions, whatever the date of acquisition.

Likewise, Telefónica notes in its report, there are doubts in Spanish courts about the qualification of the incentive as a deduction and its maintenance in the case of subsequent transmission.

The operator indicates that, at the date of formulation of these annual accounts, the three decisions remain pending a final resolution. The first two were initially annulled by two judgments of the General Court of the European Union, subsequently appealed in cassation by the European Commission before the Court of Justice of the European Union and sent again to the General Court, in December 2016, which resolved the November 15, 2018, confirming the applicability of legitimate trust, declaring, however, goodwill as a state aid incompatible with the internal market. This last sentence has been appealed to the Court of Justice.

In turn, the third decision is still pending judgment in the first instance.

Recovery of aid

Notwithstanding the foregoing, the Tax and Customs Control Unit of the Tax Agency in execution of the obligation established in the Decision of the European Commission (EU) 2015/314, has recovered in March 2019 the amortization of goodwill by the Indirect acquisition of participations in non-resident companies from 2005 to 2015, and in November of the same year, the recovery procedure for the years 2016 to 2018 began.

The effective recovery of the aid is provisional, pending the final results of the resources raised against the three decisions. The result of the liquidation, once compensated tax credits pending to be applied by the Group (negative tax bases and deductions) has meant a payment of 1.4 million euros.

Notwithstanding that the company understands that the principle of legitimate trust in relation to this tax incentive applies, the group has decided to continue providing the amount amortized fiscally in relation to goodwill for the purchase of some companies, mainly Live, for a total of 352 million euros as of December 31, 2019 (283 million euros as of December 31, 2018).


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