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Telefónica hit with $740 million tax charge in Peru

Telefónica is locked in a dispute with the Peruvian government over unpaid taxes.

The authorities claim the Spanish telecommunications company’s Peruvian unit owes back taxes of about S2 billion ($740 million). Telefónica rejects this view.

The Wall Street Journal has reported that Peruvian President Ollanta Humala is unhappy that the company has taken the dispute for arbitration at the International Centre for Settlement of Investment Disputes (ICSID).

"We understand that this theme is in the judicial system and we have to respect that, but evidently for us this is a concern that large companies that have been many years in Peru are taking legal actions against the state, that it is in a contentious process against the state for tax payments," Humala said.

However, Telefónica denied using the ICSID, saying it has approached Peru’s Ministry of Finance to settle the dispute instead.

The company believes the dispute is connected to government taxes levied on unpaid client accounts and the fact that the government will not recognise costs for interest payments.

"In both cases rights that have been recognised for other companies aren't being recognised for Telefónica," the company says. "Moreover, more than 80% of the amount in dispute with the (tax collection agency) Sunat corresponds to fines and interest."

The company adds that it paid an average effective tax rate of 51% of its profits from 1998 to 2005. "The position of Sunat in this controversy would in practice give Telefónica del Peru an average effective tax rate on income tax of 71% of profits in the same period," it said.

One lawmaker wants Telefónica to be shut out of the mobile communications market in Peru unless it pays what the government claims it owes.

Jaime Delgado, president of the consumer rights committee in the legislature, said the company’s licences for its Movistar mobile services should not be renewed if it does not pay up.

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