Orange faces €2bn tax bill as net income drops

French incumbent operator Orange has been hit with a tax bill of more than €2bn by the French government relating to a restructuring of the company eight years ago. While Orange plans to appeal the decision it must still make the payments that have been ordered, which total €1.95bn this month and a further €190m in September.

In 2005 Orange took the decision to merge a holding company that held some 60 subsidiaries into what was then France Telecom. A number of these assets had recorded significant losses and provisions for the impairment of the holding company’s shares were recorded prior to the merger. These provisions were not deducted from the company’s taxable income, Orange said, and a subsequent reversal of the provisions following the dissolution of the holding company were not accounted back into group tax earnings in a bid to “avoid double taxation.”

Orange said that the Government’s decision “effectively prevents a company from deducting provisions from its taxable income and leads to a second imposition on these same provisions once reintegrated into the company’s accounts. This simple analysis fully justifies an appeal against this judgment; in consequence, the Group will file a case in the coming days.”

Orange posted half year consolidated revenues of €20.603bn, a 4.5 per cent drop year on year, or 2.2 per cent if the impact of regulatory activities on interconnect and roaming prices are removed. EBITDA was €6.417bn for the period, although net profit was €1.209bn, down from €1.909bn for the same period in 2012.