The European Commission Monday referred France and Spain to Europe's highest court and instigated the first step in legal proceedings against Hungary, because the countries' taxes on the turnover of telecoms operators may not be compatible with European Union law.

The commission referred France and Spain to the European Court of Justice after they failed to comply with its request in October last year to end charges that were introduced partly to offset the end of paid advertising on public television.

"The commission considers the 'telecoms taxes' in France and Spain to be incompatible with EU telecoms rules, which require specific charges on telecoms operators to be directly related to covering the costs of regulating the telecoms sector," European Commissioner for the digital agenda Neelie Kroes' department said in a statement.

In France, telecoms operators have to pay 0.9% of their total revenue from subscribers, which is then used to fund French public TV. The annual income from the new charge, which is paid to the French Treasury by operators including France Telecom SA (FTE), Vivendi SA's (VIV.FR) SFR and Bouygues SA's (EN.FR) telecom unit, is estimated at around EUR400 million.

France maintains that a tax on local telecoms operators is compliant with European Union rules, a person close to the French Finance Ministry told Dow Jones Newswires.

"We don't agree with the Commission's analysis...We don't believe this tax is contrary to EU rules," the person said. "We will make clear our arguments before the court."

In neighbouring Spain, the government introduced a similar law in September 2009 to help fund state-owned broadcaster RTVE, which controls the country's top channel by audience, TVE1. The operators, including market leader Telefonica SA (TEF), made the first payment in Oct 2010. Overall, the charge was expected to generate revenue of around EUR230 million in 2010.

The Spanish government didn't immediately respond to a request for comment.

If such taxes are found to be incompatible with EU law, companies who paid the levies could theoretically take out injunctions against governments to get the money back.

In Hungary, the commission opened infringement proceedings against the government's telecoms tax, saying it was "similar" to the French and Spanish cases. It has sent a "letter of formal notice," the first stage of EU infringement procedures, to which Hungary has two months to reply.

Hungary collects HUF61 billion ($309 million) a year from the extra tax levied on the telecom sector. The tax was set to be in place for three years starting in 2010.

The letter comes against a backdrop of other disputes between Hungary and the EU. Earlier this month, the Hungarian parliament passed amendments to a much-debated media law introduced Jan. 1. Kroes, present in parliament at the time of the voting, welcomed the amendments.

There are also further potential cases in the pipeline. The application of the "special tax" to retail commerce and to energy companies is still being analyzed by the commission.

"We're in contact with the Hungarian authorities," an EU spokeswoman told reporters at a press briefing, adding a response was expected on the levies in other sectors "very soon."

The Hungarian Government didn't immediately respond to requests seeking comment.

-By Frances Robinson, Dow Jones Newswires; +32 2 741 1486; frances.robinson@dowjones.com

(Margit Feher in Budapest and David Roman in Madrid contributed to this article.)