Electricite de France SA could potentially recover some euro1.2 billion after it won a European Union court challenge Tuesday that said EU regulators were wrong to order the company to repay tax relief to the French government.

The ruling from the EU's general court can still be appealed to the EU's highest legal authority, the court of justice — or EU regulators can also come to a new decision on the subsidy that would address the court's criticisms.

The court said Monday that the European Commission had failed to check if the French government had acted like a private investor when it decided that the company had effectively received an illegal subsidy by reclassifying money saved from a 1997 tax break as a capital injection.

The court said regulators had violated EU state aid law by failing "to apply the private investor test" to the terms of the capital injection — even if the money had come from a fiscal debt.

In 2003, commission ordered the company to repay the euro888.89 million tax concession to the government, saying it was a state subsidy that gave the business — then state-owned — an unfair advantage over rivals.

At the time, it was the highest subsidy that the EU had ever ordered to be repaid. With interest, the full amount was euro1.2 billion — which EDF has now paid to the French state.