Telefónica faces uncertain future in Peru over renewal of licenses

Spanish telecoms giant Telefónica is locked in a dispute in Peru over claims for unpaid taxes that has cast a shadow over the renewal of licenses to operate in the Latin American country.

Two of the licenses Telefónica has in Peru have already expired and another one is due to do so at the start of next year. However, since President Ollanta Humala took office on July 28, negotiations on their renewal have come to a halt, with the new administration insisting that Telefónica first settle a disputed tax bill of close to 1 billion euros, including surcharges, fines and interest, before starting up talks again.

Telefónica refuses to recognize the demands of the local tax authority SUNAT and has taken the case to court. "A large part of the controversy refers to two big points. They want Telefónica to pay taxes on the accounts of clients that are unpaid; and on the other they are refusing to recognize costs in the form of interest payments," Telefónica said in a statement. "They are denying Telefónica rights that they recognize in the case of other companies."

The case has been taken up by the Spanish embassy in Peru. According to investigative website IDL-Reporteros, Spain's ambassador in Peru, Javier Sandomingo, took advantage of a reception held in Lima on October 12 on the occasion of the celebration of Hispanidad Day to take up the issue with Humala. However, the Peruvian president insisted Telefónica first had to pay the taxes demanded by the state before restarting talks on the renewal of its licenses.

Along similar lines, the deputy minister for communications, Raúl Pérez Reyes, last week said in the official daily El Peruano: "We are reviewing the tax aspect, despite the fact it is not directly related with the renewal of the contracts. We have the right to question whether we want to renew the contracts of a company with such a big debt."

Telefónica insists that the two issues should be kept separate. The expiring contracts have been in operation since 1991 and were drawn up in such a way that they do not specify the conditions of their renewal, says Liliana Ruiz de Alonso, the chairwoman of Alterna Perú, a consultant that specializes in telecommunications issues.

Telefónica requested their renewal in 2009 and in July of this year. It had reached a pre-agreement on their renewal with the Transport and Telecommunications Ministry of the previous administration to renew them until 2030 in exchange for a commitment to invest $500 million in the country over the next five years.

However, at the express petition of the incoming Humala government, the renewals were not signed. After taking office, the administration ordered a review of the whole process.

Sources say the government is considering asking Telefónica to pay to renew its concessions or possibly offer them to the highest bidder in a public tender again, a move the Spanish firm claims goes against Peruvian law.