Telefónica’s outstanding debt exceeds S/4,000 million

Telefónica still maintains a debt of almost S/4,000 million with the Peruvian state, after this month Sunat was able to collect the S/746 million bail it owed for a trial won more than a year ago. However, both amounts have been reduced by an undetermined percentage due to the forgiveness of interest.

In 2011, several years after a controversy began between Telefónica and Sunat over the payment of IR in 2000 and 2001, the Tax Court ruled in favor of the Peruvian State in the five objections presented by the Spanish-owned company.

It is then that Telefónica decides to take the case before the Judiciary and, in January 2023, the Supreme Court rules again in favor of the State, but only in four objections. It was then time to execute the letters of guarantee, a guarantee equivalent to 60% of the amount in controversy that companies must prove to the court to ensure that, in the event that they lose, they honor their debts.

The delay begins when, in March of that same year, Sunat requests the execution of the letters, which were due to expire in April, by the Percy Salas Ferro court, and he resolves to deliver them only in September. But the letters that he intends to deliver to the administration are the expired ones, and not those that were renewed in May.

The tortuous collection process finally culminated with the delivery of updated letters on Friday of last week. That same day, in the afternoon, Telefónica released a statement announcing the timely payment of its debt.

The subject of the five objections were 1) financial burden, 2) provision of doubtful collections, 3) disposal of assets through transfer of assets, 4) cost of fixed assets-overhead, and 5) documents that do not support expenses. In the latter, he lost the Peruvian state.

What was it about? Telefónica managed to standardize the rent it made in pharmacies to install pay phones to the payment that a person would make for renting a home. With this, he obtained a rate of 15% of the IR, but not that of a commercial premises at 30%. The ruling was discordant.

But the amount of S/746 million collected from the bail, according to the same source, was already reduced by the remission of interest; That is to say, it was much more. Likewise, the debt that Telefónica currently maintains with Sunat It is around S/4,000 million, discounts included, according to preliminary data provided by sources who followed the case.

And the announced amount of S/1,361 million? Other sources in the Judiciary maintain that there is no clarity about this. Although the S/746 million are included there, the rest could have any other origin, since “a deposit of hundreds of millions of soles still needs to be collected between this and next week”, while Telefónica has another ten lawsuits pending against Sunat.

Discord Court

There is a concept that must be clear to taxpayers. Money, over the years, devalues, and that is why Sunat charges the so-called default interest when trials are prolonged. They can be prolonged because the State is slow to resolve, or because the prosecuted taxpayer, in his right, challenges upon challenge.

The problem begins in February 2023, when the Constitutional Court, in the ruling handed down in Exp. 03525-2021-PA/TC, condones interest in cases in which the delay was caused by the State, which thus generates a “perverse incentive”.

Luis Arias Minaya, former head of the Sunat, explains that, from now on, large firms would have the chance to extend trials indefinitely and, even if they lose, only pay the original devalued amount. A situation that ordinary citizens or MSEs would not experience, since they do not have the financial backing to face such long processes. Telefónica decided not to collaborate with this report.

“Telefónica delayed the payment that it saw lost, withholding the deposit. The money must be updated with a rate over time so as not to affect the treasury. The law mainly and almost exclusively benefits large companies that have disputes with the State,” says Arias.

Telefónica’s rating continues to decline

Moody’s reaffirmed Telefónica’s grade at B2, after lowering it in March from Ba3.

In the next 12-18 months, he expects “a deterioration in liquidity and leverage due to a US$720 million tax dispute with Sunat.”

For Moody’s, the company’s adjusted EBITDA will hover around 24% in the next 12-24 months.

The ruling that releases the bail

Sunat was finally able to collect the bail letters owed after a trial won a year ago.