TEF Telefonica SA

DESCRIPTION OF TELEFÓNICA’S SHARES

Our shares are governed by our bylaws (Estatutos Sociales) and by Spanish law, among others, the Spanish Corporations Act (Ley de Sociedades de Capital), approved by Royal Legislative Decree 1/2010 of July 2, as amended (the “Spanish Corporations Act”), and the Spanish Securities Market and Financial Services Act (Ley 6/2023, de 17 de marzo, de los Mercados de Valores y de los Servicios de Inversión), as amended (the “Spanish Securities Market Act”), and by ancillary provisions further developing those pieces of legislation. Shareholders’ rights are principally governed by the Spanish Corporations Act, Telefónica’s bylaws and Telefónica’s regulations on the general shareholders’ meeting (Reglamento de la Junta General de Accionistas).

The following summary describes the material considerations concerning the capital stock of Telefónica and briefly describes the material provisions of Telefónica’s bylaws and relevant Spanish law. This summary does not include all the provisions of our bylaws nor of the Spanish laws mentioned herein and is qualified in its entirety by reference to the detailed provisions thereof.

A copy of Telefónica’s bylaws has been filed with the SEC as an exhibit to the registration statement of which this prospectus is a part.

General

As of April 20, 2023, our issued share capital consisted of 5,750,458,145 ordinary registered shares with a par value of 1.00 euro each (each, a “Share”) (5,775,237,554 Shares as of December 31, 2022). At the general shareholders’ meeting of March 31, 2023, our shareholders delegated to the Board of Directors the authority to reduce our share capital by the amount of 24,779,409 euros, by means of the cancellation of 24,779,409 Shares held by Telefónica as treasury stock (representing approximately 0.43% of Telefónica’s share capital as of such date). This reduction in Telefónica’s share capital was registered in the Mercantile Registry of Madrid on April 17, 2023. The share capital reduction was charged against unrestricted reserves. As a result thereof, a specific reserve was created for an amount equivalent to the reduction in share capital (i.e., 24,779,409 euros). In accordance with the applicable provisions of the Spanish Corporations Act, Telefónica’s creditors had no opposition rights in connection with the reduction in share capital.

Our shareholders delegated to the Board of Directors the authority to issue up to 2,596,065,843 new Shares (equal to half of Telefónica’s share capital on June 12, 2020, the date of the authorization). The Board of Directors is authorized to exclude preemptive rights, in whole or in part, pursuant to the applicable provisions of the Spanish Corporations Act. However, the power to exclude preemptive rights is limited to Shares amounting to up to 20% of the share capital on June 12, 2020, the date of the authorization. The Board’s authorization to issue new Shares expires on June 12, 2025.

Attendance and Voting at Shareholders’ Meetings

We hold our ordinary general shareholders’ meeting during the first six months of each financial year on a date fixed by the Board of Directors. An ordinary general shareholders’ meeting shall be valid even if it is called or held after this term has expired. Any general shareholders’ meeting that is not an ordinary general shareholders’ meeting shall be considered extraordinary. General shareholders’ meetings are called by our Board of Directors, and may also be called upon the request of shareholders representing solely or jointly at least 3% of our paid-in share capital.

Any notice to call an ordinary or extraordinary general shareholders’ meetings is published in one of the more widely circulated newspapers in Spain, on the website of the Spanish Securities and Exchange Commission (Comisión Nacional del Mercado de Valores (the “CNMV”)), and on our website in due time, pursuant to the Spanish Corporations Act, being on a general basis at least one month before the relevant meeting. Furthermore, the Board of Directors may publish such notices in other media, if deemed appropriate to ensure the public and effective dissemination of the notice to call the meeting.

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In accordance with the Spanish Corporations Act the notice to call a general shareholders’ meeting, whether ordinary or extraordinary, shall include, inter alia, the agenda for the meeting, as proposed by our Board of Directors. In respect of ordinary shareholders’ meetings, shareholders representing solely or jointly at least 3% of our share capital may request that a supplement be published in addition to the notice to call an ordinary shareholders’ meeting, whereby one or more items are requested to be included on the agenda, provided that such new items are accompanied by a justification or, where appropriate, a reasoned motion. In addition, with respect to both ordinary and extraordinary shareholders’ meetings, such shareholders may also submit motions on items that are already on the agenda or which ought to be on the agenda for the scheduled meeting.

Our general shareholders’ meetings may be held through: (i) physical attendance; (ii) physical attendance with the possibility of attending remotely using electronic means; or (iii) to the extent permitted by the applicable law and when advisable, exclusively electronic means. For (ii) and (iii), shareholders’ attendance will be regulated by Telefónica’s bylaws, Telefónica’s regulations on the general shareholders’ meeting and the rules approved by the Board of Directors upon calling the meeting within the scope of its powers.

Each Share of Telefónica, S.A. entitles the holder to one vote. However, only registered holders of at least 300 Shares are entitled to attend a general shareholders’ meeting. Holders of a lesser number of Shares may grant a proxy in respect thereof to a shareholder having the right to attend (or in favor of any member of the Board), as well as group together with other shareholders in the same situation until reaching the required number of Shares, following which a proxy must be granted by the shareholders so grouped together to one of such shareholders. The grouping must be carried out specifically for each general shareholders’ meeting and be recorded in writing.

However, under our bylaws, the maximum number of votes that a shareholder may cast is capped at 10% of our total share capital with voting rights from time to time. In determining the maximum number of votes that each shareholder may cast, only the Shares held by such shareholder are counted, disregarding those that correspond to other shareholders who have appointed such shareholder as his or her proxy, in spite of applying the limit individually to each of the represented shareholders. This cap will also apply to the maximum number of votes that may be collectively or individually cast by two or more shareholder companies belonging to the same group of entities, as well as to the maximum number of votes that may be cast by an individual or corporate shareholder and the entity or entities that are shareholders themselves and which are directly or indirectly controlled by that individual or corporate shareholder. Moreover, in accordance with the Spanish Corporations Act, such cap would become ineffective where the bidder reaches, as a consequence of a tender offer, a percentage equal to or greater than 70% of the share capital carrying voting rights, unless the bidder (or those acting in concert with the bidder) is not subject to equivalent neutralization measures or has not adopted them.

In addition, according to Article 34 of Spanish Royal Decree-Law 6/2000 of June 23 on urgent measures to improve competition in the goods and services markets, individuals and legal entities directly and indirectly holding more than 3% of the total share capital or voting rights of two or more principal operator companies in Spain in, among other markets, the fixed-line and mobile-line telephony markets, may not exercise their voting rights in excess of 3% of the total in more than one company, except with the prior authorization of the Spanish National Markets and Competition Commission (Comisión Nacional de los Mercados y la Competencia (the “CNMC”)). Principal operators are defined as one of the five operators with the largest market share in the corresponding market (“Principal Operators”). In addition, no individual or legal entity is allowed to appoint, directly or indirectly, members of the management body of more than one Principal Operator in, among others, the fixed-line or mobile-line telephony markets, except with the prior authorization of the CNMC. Additionally, individuals or legal entities considered Principal Operators are not allowed to exercise more than 3% of the voting rights of another Principal Operator nor to appoint, directly or indirectly, members of the management body of any Principal Operator, except, in both cases, with the prior authorization of the CNMC. Telefónica is considered a Principal Operator for the purposes of Article 34 of Royal Decree-Law 6/2000 of June 23 in the Spanish fixed-line and mobile-line telephony markets.

Shareholders’ voting rights may be exercised by proxy. Proxies may be given to any person, whether or not a shareholder. The proxies may be granted in writing or electronically and are valid only for a single meeting,

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unless the proxy-holder is the granting shareholder’s spouse, ascendant or descendant, or holds a general power of attorney granted in a public instrument with powers to manage all of the assets held by the shareholder granting the proxy in Spain. Additionally, the Spanish Corporations Act allows for the public solicitation of proxies by Telefónica (through our directors) or by any shareholder. If representation is granted following a public request, the proxy holder cannot vote on those items of the agenda in respect of which a conflict of interest exists, unless the relevant shareholder has given specific voting instructions; another proxy holder may be appointed to vote on the conflicted items.

Under the Deposit Agreement (as defined herein), relating to our ADSs, the Depositary (as defined herein) accepts voting instructions from holders of ADSs. The Depositary executes such instructions to the extent permitted by law and by the terms governing the Shares and ADSs. The Depositary or its nominee, as the case may be, will be entitled to vote by proxy the Shares underlying the relevant ADSs. For additional information, see “Description of American Depositary Shares”.

Only shareholders of record whose ownership is duly recorded five days prior to the day on which a general shareholders’ meeting is scheduled to be held may attend and vote at the meeting. Therefore, ultimate beneficial owners that are not shareholders of record do not have the right to attend general shareholders’ meetings unless the relevant intermediary grants to them the relevant proxies.

According to the Spanish Corporations Act, the general shareholders’ meeting will be quorate on first call if the shareholders present, in person or by proxy, hold at least 25% of the subscribed share capital carrying voting rights. On second call, the meeting will be quorate regardless of the capital in attendance.

However, if the agenda of the meeting includes resolutions on the amendment of the bylaws, including an increase or reduction of share capital, the transformation, merger, split-off, the en bloc assignment of assets and liabilities, the migration of the registered office abroad, the issuance of debentures or the exclusion or limitation of preemptive rights, the required quorum on first call must be met by the attendance of shareholders representing at least 50% of the subscribed share capital carrying voting rights (each a “Special Resolution”). On second call, the attendance of 25% of the subscribed share capital carrying voting rights will suffice.

As a general rule, resolutions at the general shareholders’ meeting will be passed by a simple majority of votes cast at such meeting (i.e., provided that the votes “for” outnumber the votes “against” the relevant resolution).

In contrast, in order to approve any Special Resolution, if the capital present or represented at the general shareholders’ meeting exceeds 50% of the subscribed share capital carrying voting rights, the favorable vote of the absolute majority (that is, if the votes in favor exceed 50% of the votes corresponding to capital present and represented at the shareholders’ meeting) will be required. If, on second call, shareholders representing 25% or more of the subscribed share capital carrying voting rights are present or represented but fail to reach the 50% threshold, the favorable vote of at least two-thirds of the share capital present or represented at the meeting will be required. In any case, as stated above, according to our bylaws and in any case subject to applicable law, no shareholder may cast a number of votes in excess of 10% of the total voting capital existing at any time, regardless of the number of shares held by such shareholder.

Preemptive Rights

Pursuant to the Spanish Corporations Act, shareholders have preemptive rights to subscribe for any new Shares in capital increases with issuances of new Shares with a charge to monetary contributions and in issuances of debentures convertible into Shares. Such rights may be excluded (partially or totally) under special circumstances by virtue of a resolution passed at a general shareholders’ meeting in accordance with Articles 308, 504 and 506 of the Spanish Corporations Act, or by the Board of Directors, if previously authorized at a general shareholders’ meeting in accordance with Article 506 of the Spanish Corporations Act (for capital

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increases) and Articles 417 and 511 (for issuances of debentures convertible into Shares). Such preemptive rights will not be available in the event of an increase in capital to meet the requirements of a convertible bond issue or a merger or demerger of another entity into Telefónica or of all or part of the assets split from another company, in which Shares are issued as consideration or, in general, when the increase is carried out as consideration in exchange for non-cash contributions. Such rights are transferable, may be traded on the Automated Quotation System and may be of value to existing shareholders because new Shares may be offered for subscription at prices lower than prevailing market prices.

Form and Transfer

Shares are in book-entry form (anotaciones en cuenta) and are indivisible. Joint holders of Shares must nominate one person to exercise their rights as shareholders, but are jointly and severally liable for all obligations arising from their status as shareholders. The entity Sociedad de Gestión de los Sistemas de Registro, Compensación y Liquidación de Valores, S.A. Unipersonal (“Iberclear”), which manages the clearance and settlement system of the Spanish Stock Exchanges, maintains the central registry of Shares reflecting the number of Shares held by each of its participant entities (entidades participantes) as well as the number of such Shares held by registered legal owners. Each participant entity in turn maintains a register of the owners of such Shares.

Transfers of Telefónica’s Shares quoted on the Spanish Stock Exchanges must be made by book-entry registry or delivery of evidence of title to the buyer through, or with the participation of, a member of the Spanish Stock Exchanges that is an authorized broker or dealer. Transfers of Telefónica’s Shares may also be subject to certain fees and expenses.

There are no restrictions with respect to the transfer of our Shares under Spanish law or our bylaws.

Reporting Requirements

According to Royal Decree 1362/2007 of October 19 on the disclosure of significant stakes in listed companies (“Royal Decree 1362/2007”), which was modified by Royal Decree 878/2015 of October 2, which regulates, inter alia, the registration, clearing and settlement of securities represented by book-entries and transparency requirements for issuers of securities admitted to trading (“Royal Decree 878/2015”), the acquisition or transfer of Shares of Telefónica must be reported within four trading days of the acquisition or transfer to Telefónica and the CNMV, where:

Royal Decree 878/2015 established a new approach for calculating whether these thresholds are reached, surpassed or fell short which requires adding the voting rights corresponding to shares and financial instruments. Royal Decree 878/2015 also expanded the definition of financial instruments which should be reported, including financial instruments having a similar economic effect as the shares of a company, whether the instruments are cash or physically settled, including convertible securities, options, forwards, futures, swaps, contracts for differences (CFDs) or any other type of instrument which grants the holder the right to acquire shares or a right to receive an equivalent cash settlement amount. Additionally, Royal Decree 878/2015 amended, among others, the calculation rules of the voting rights attributable to a financial instrument, which shall be calculated on a daily basis.

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The reporting requirements referred to above apply not only to the acquisition or transfer of Shares, but also when, without an acquisition or transfer of Shares, the proportion of voting rights of an individual or legal entity reaches, exceeds or falls below the threshold that triggers the obligation to report as a consequence of a change in the total number of voting rights of Telefónica on the basis of the information reported to the CNMV and disclosed by it, in accordance with Royal Decree 878/2015.

Regardless of the ultimate beneficial ownership of the Shares, any individual or legal entity with a right to acquire, transfer or exercise voting rights granted by the Shares, and any individual or legal entity who owns, acquires or transfers, whether directly or indirectly, other securities or financial instruments which grant a right to acquire Shares (such as transferable securities, options, futures, swaps, forwards and other derivative contracts), will also have an obligation to notify Telefónica and the CNMV of the holding of a significant stake in accordance with the above-mentioned regulations.

Stricter disclosure obligations apply if the person obligated to disclose has residency in a country considered a tax haven by the Spanish authorities, a zero-taxation country or a country or territory that does not share information with the Spanish authorities (a non-cooperative jurisdiction), in which cases the initial threshold for disclosure is reduced to 1% (and successive multiples of 1%).

Pursuant to Regulation (EU) No 596/2014 of the European Parliament and of the Council of April 16, 2014 on market abuse, which repeals Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC, (the “Market Abuse Regulation”), persons discharging managerial responsibilities, as well as persons closely associated with them, shall notify Telefónica and the CNMV of every transaction conducted on their own account relating to our Shares or debt instruments or to derivatives or other financial instruments linked thereto.

According to the Market Abuse Regulation a “person discharging managerial responsibilities” means a person within an issuer, who is: (i) a member of the administrative, management or supervisory body of that entity; or (ii) a senior executive who is not a member of the bodies referred to in (i), who has regular access to inside information relating directly or indirectly to that entity and power to take managerial decisions affecting the future developments and business prospects of that entity.

In addition, in accordance with Article 230 of the Spanish Securities Market Act, the obligation to notify the transactions will arise when, within a calendar year, the sum of all transactions without offsets reaches 20,000 euros. From that first communication, persons discharging managerial responsibilities and the persons closely associated with them must notify each and every subsequent transaction.

As stated above, disclosure obligations are primarily regulated by Royal Decree 1362/2007 (as amended), by the Market Abuse Regulation and by the Spanish Securities Market Act, which establish a detailed set of rules on this legal framework (including, inter alia, rules determining the persons subject to disclosure obligations, the different types of situations triggering disclosure and the corresponding exceptions, specific attribution and aggregation rules, the deadlines to notify the transactions, triggering disclosure obligations and incorporation of notices submitted to the CNMV’s public registry).

Disclosure of Net Short Positions

In accordance with Regulation (EU) No. 236/2012 of the European Parliament and of the European Council (“Regulation 236/2012”) as regards the adjustment of the relevant threshold for the notification of significant net short positions in shares, as amended by the Commission Delegated Regulation (EU) 2022/27 of September 27, 2021 (which entered into force on January 31, 2022), net short positions on shares listed on the Spanish Stock Exchanges (such as the Shares) equal to, or in excess of, 0.1% of the relevant issuer’s share capital and each 0.1% above that, are required to be disclosed to the CNMV by no later than the first trading day following the transaction. If the net short position reaches 0.5%, and also at every 0.1% above that, the CNMV will disclose the net short position to the public.

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Notification is mandatory even if the same position has been already notified to the CNMV in compliance with reporting requirements previously in force in Spain.

The information to be disclosed is set out in Table 1 of Annex I of Delegated Regulation (EU) 826/2012, according to the format approved as Annex II thereof. The information will be published, where appropriate, on a web page operated or supervised by the corresponding authority.

Moreover, pursuant to Regulation 236/2012, where the CNMV considers that (i) there are adverse events or developments that constitute a serious threat to financial stability or to market confidence (serious financial, monetary or budgetary problems, which may lead to financial instability, unusual volatility causing significant downward spirals in any financial instrument, etc.); and (ii) the measure is necessary and will not be disproportionately detrimental to the efficiency of financial markets in view of the advantages sought, it may, following consultation with the European Securities and Market Authority (“ESMA”), take any one or more of the following measures:

In addition, according to Regulation 236/2012, where the price of a financial instrument has fallen significantly during a single day in relation to the closing price on the previous trading day (10% or more in the case of a liquid share), the CNMV may prohibit or restrict short selling of financial instruments for a period not exceeding the end of the trading day following the trading day on which the fall in price occurs.

Finally, Regulation 236/2012 also vests powers to ESMA in order to take measures similar to the ones described above in exceptional circumstances, when the purpose of these measures is to deal with a threat affecting several EU member states and the competent authorities of these member states have not taken adequate measures to address it.

Shareholder Agreements

Article 531 et seq. of the Spanish Corporations Act require parties to disclose those shareholders’ agreements in respect of Spanish listed companies (such as Telefónica) that affect the exercise of voting rights at a general shareholders’ meeting or contain restrictions or conditions on the transferability of shares or bonds that are convertible or exchangeable into shares. If any shareholders enter into such agreements with respect to Telefónica’s Shares, they must disclose the execution, amendment or extension of such agreements to Telefónica and the CNMV (together with the relevant clauses of said agreements) and file such agreements with the appropriate Commercial Registry. Failure to comply with these disclosure obligations renders any such shareholders’ agreement unenforceable and constitutes a violation of the Spanish Securities Market Act.

Telefónica is subject to certain disclosure obligations with regard to certain related-party transactions above the thresholds established by the law.

Acquisition of Own Shares

Pursuant to Spanish corporate law, we may only repurchase our own Shares within certain limits and in compliance with the following requirements:

For these purposes, net worth means the amount resulting from the application of the criteria used to draw up the financial statements, subtracting the amount of profits directly imputed to that net worth, and adding the amount of share capital subscribed but not called and the share capital par and issue premiums recorded in our accounts as liabilities. In addition:

Voting rights attached to treasury shares held directly or indirectly will be suspended. Economic rights (e.g., the right to receive dividends and other distributions and liquidation rights) attached to treasury shares directly held will accrue proportionately to all of the remaining Shares owned by our shareholders, with exclusion of the right to receive bonus Shares. Treasury shares are counted for the purpose of establishing the quorum for shareholders’ meetings and majority voting requirements to pass resolutions at shareholders’ meetings.

The repurchase of Shares can benefit from certain exemptions under the Market Abuse Regulation (i.e., without being subject to the prohibitions of market manipulation and inside trading), if said repurchase is implemented through a share buyback program.

A share buyback program must comply with the requirements established under Article 5 of the Market Abuse Regulation and the sole purpose of the buyback program must be to reduce the share capital of Telefónica (in value or in number of Shares) or to meet obligations arising from either of the following:

CNMV Circular 1/2017, dated April 26, on liquidity contracts entered into by issuers with financial institutions for the management of its treasury shares (“Circular 1/2017”), as amended by CNMV Circular 2/2019, dated November 27, governs the disclosure requirements for issuers and the rules of conduct to be followed by financial intermediaries when trading under a liquidity agreement for these trades to benefit from the safe harbor provided by such Circular 1/2017 and qualify as an accepted market practice for the purposes of market abuse regulations.

If an acquisition or series of acquisitions of Shares of Telefónica reaches or exceeds or causes Telefónica’s and its affiliates’ holdings to reach or exceed 1% of Telefónica’s voting Shares, Telefónica must notify its final

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holding of treasury stock to the CNMV. If such threshold is reached as a result of a series of acquisitions, such reporting obligation will only arise after the closing of the acquisition which, taken together with all acquisitions made since the last of any such notifications, causes the Telefónica’s and its affiliates holdings to exceed, 1% of Telefónica’s voting Shares. Sales and other dispositions of Telefónica’s treasury stock will not be deducted in the calculation of such threshold. This requirement also applies if the stock is acquired by a majority-owned subsidiary of Telefónica.

Moreover, pursuant to Spanish corporate law, the audited financial statements of a company must include a reference regarding any treasury shares.

As of the date of this prospectus, we held 71,495,137 Shares of treasury stock, representing 1.24329% of our share capital. At December 31, 2022, we held 85,217,621 Shares of treasury stock, representing 1.47600% of our share capital.

At our general shareholders’ meeting held on March 31, 2023, our shareholders authorized the Board of Directors to acquire Shares for a period five years from the date of such meeting. Pursuant to the authorization, the aggregate par value of our Shares held by us or any of our subsidiaries cannot exceed the limit established by applicable laws (which is, as of the date of this prospectus, 10% of our outstanding capital). The prior authorization granted at the general shareholders’ meeting held on June 8, 2018 was rescinded to the extent not used.

Change of Control Provisions

Certain antitrust regulations may delay, defer or prevent a change of control of Telefónica or any of its subsidiaries in the event of a merger, acquisition or corporate restructuring. In Spain, the application of both Spanish and European antitrust regulations requires that prior notice of domestic or cross-border merger transactions be given in order to obtain a “non-opposition” ruling from antitrust authorities.

Tender Offers

Tender offers are governed in Spain by the Spanish Securities Market Act and Royal Decree 1066/2007, of July 27, on tender offers. Tender offers in Spain may qualify as either mandatory or voluntary offers.

Mandatory tender offers must be launched for all the shares of the target company or other securities that might directly or indirectly give the right to subscription thereto or acquisition thereof (including convertible and exchangeable bonds) at an equitable price and not subject to any conditions, when any person acquires control of a Spanish company listed on any of the Spanish Stock Exchanges, whether such control is obtained:

A person is deemed to have obtained the control of a target company, individually or jointly with concerted parties, whenever:

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Notwithstanding the above, Spanish applicable regulations establish certain exceptional situations where control is obtained but no mandatory tender offer is required, including, among others:

For the purposes of calculating the percentages of voting rights acquired, the applicable regulations establish the following rules:

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Notwithstanding the foregoing, upon the terms established in the applicable regulations, the CNMV will conditionally dispense with the obligation to launch a mandatory bid when another person or entity, individually or jointly in concert, directly or indirectly holds an equal or greater voting percentage than the potential bidder in the target company.

The price of the mandatory tender offer is deemed equitable when it is at least equal to the highest price paid or agreed by the bidder or by any person acting in concert therewith for the same securities during the 12 months prior to the announcement of the tender offer. When the mandatory tender offer must be made without the bidder having previously acquired the shares over the above-mentioned 12-month period, the equitable price shall not be less than the price calculated in accordance with other rules set forth in the regulations. In any case, the CNMV may change the price so calculated in certain circumstances (extraordinary events affecting the price, evidence of market manipulation, etc.).

Mandatory offers must be launched within one month from the acquisition of the control of the target company.

Voluntary tender offers may be launched when a mandatory offer is not required. Voluntary offers are subject to the same rules established for mandatory offers except for the following:

In any case, pursuant to the Spanish Securities Market Act, the price in a voluntary tender offer must be the higher of (i) the equitable price and (ii) the price resulting from an independent valuation report, and must at least consist of cash as an alternative if certain circumstances have occurred during the two years prior to the announcement of the offer (basically, the trading price for the shares being affected by price manipulation practices, market or share prices being affected by natural disasters, force majeure, or other exceptional events, or the target company being subject to expropriation or confiscation resulting in a significant impairment of the company’s real value).

Spanish applicable regulations on tender offers set forth further provisions, including:

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Foreign Investment and Exchange Control Regulations

Restrictions on Foreign Investment

Exchange controls and foreign investments are regulated under Law 19/2003, of July 4 (“Law 19/2003”), as amended pursuant to Royal Decree-Law 8/2020, of March 17, Royal Decree-Law 11/2020, of March 31 and Royal Decree-Law 34/2020, of November 17 (as amended by Royal-Decree Law 12/2021, of June 24; Royal-Decree Law 27/2021 of November 23; and Royal-Decree Law 20/2022 of December 27).

Foreign investments are generally liberalized unless they fall within the scope of article 7 bis of Law 19/2003, enacted in March 2020 through Royal Decree-Law 8/2020, or—only with respect to investments in the defense sector—article 11 of Royal Decree 664/1999, of April 23 (“Royal Decree 664/1999”) and Regulation (EU) 2019/452.

Screening Mechanism

Article 7 bis of Law 19/2003 establishes a screening mechanism for certain investments made by non-EU and non-EFTA residents, based on public order, public health and public security reasons (the “Screening Mechanism”). The Screening Mechanism aligns part of the Spanish foreign investment legal framework with Regulation (EU) 2019/452 of March 19, 2019 establishing a framework for the screening of foreign direct investments into the European Union. Certain provisions of Regulation (EU) 2019/452—such as the list of sectors affecting public order and public security or the definition of state-owned enterprises and other similar investors—are mirrored in the regulations establishing the Screening Mechanism.

The Screening Mechanism can be summarized as follows:

For the purposes of the Screening Mechanism, the following persons are deemed to be “foreign investors”:

In addition, effective November 19, 2020 and until December 31, 2024, the following persons will also be deemed to be “foreign investors”, provided they invest in listed companies or the investment value exceeds 500 million euros:

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Foreign direct investments (“FDI”) are:

Not all foreign direct investments are subject to the Screening Mechanism. Investors are subject to the Screening Mechanism only if they qualify as FDI and the investment is made in one of the critical sectors or—only where the investor is a Non-UE or non-EFTA investor—by investors that meet certain subjective criteria regardless of the business of the target.

FDI in the following sectors are subject to the Screening Mechanism:

We are engaged in activities that are included in one or more sectors listed above. As such, FDI in Telefónica may be subject to the Screening Mechanism if the conditions described in this section are satisfied.

FDI by the following non-EU and non-EFTA investors are also subject to the Screening Mechanism, regardless of the business of the target:

Gun jumping the Screening Mechanism (i.e., completing a transaction without the required authorization) will render the transaction invalid and without any legal effect until the required authorization is obtained. In addition, fines up to the value of the investment could be imposed.

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In addition, Royal Decree 664/1999 establishes that non-Spanish foreign investors who are not resident in a non-cooperative jurisdiction are required to file a notification with the Spanish Registry of Foreign Investments following an investment or divestiture, if any, solely for statistical, economic and administrative purposes. Where the investment or divestiture is made in shares of Spanish companies listed on any of the Spanish Stock Exchanges, the duty to provide notice of a foreign investment or divestiture lies with the relevant entity with whom the shares (in book-entry form) have been deposited or which has acted as an intermediary in connection with the investment or divestiture.

If the foreign investor is a resident of a non-cooperative jurisdiction, as defined under Spanish law (Law 36/2006 of November 29 and Order HFP/115/2023 of February 9), notice must be provided to the Registry of Foreign Investments prior to making the investment, as well as after consummating the transaction. However, prior notification is not necessary in the following cases:

Additional regulations to those described above apply to investments in some specific industries, including air transportation, mining, manufacturing and sales of weapons and explosives for civil use and national defense, radio, television, telecommunications and gambling. These restrictions do not apply to investments made by EU residents, other than investments by EU residents in activities relating to the Spanish defense sector or the manufacturing and sale of weapons and explosives for non-military use.

Exchange Control Regulations

Pursuant to Royal Decree 1816/1991 of December 20, as amended by Royal Decree 1360/2011 of October 7, relating to economic transactions with non-residents, and EC Directive 88/361/EEC, receipts, payments or transfers between non-residents and residents of Spain must be made through registered entities (entidades registradas), such as banks and other financial institutions properly registered with the Bank of Spain and/or the CNMV, through bank accounts opened with foreign banks or foreign branches of registered entities or in cash or by a check payable to bearer.

Dividends

Shareholders vote on final dividend distributions at the general shareholders’ meeting. Distributable profits are equal to:

The amount of distributable profits is based on our unconsolidated financial statements prepared in accordance with Spanish GAAP, which differ from the Consolidated Financial Statements prepared in accordance with IFRS as issued by the IASB included in the 2022 Form 20-F.

If the general shareholders’ meeting resolves to pay out dividends, it shall determine the amount, payment date and method of payment or delegate to our Board of Directors the power to further specify the terms of the distribution.

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In accordance with Telefónica’s by-laws, the general shareholders’ meeting may agree to pay out dividends in kind, in whole or in part, provided the goods or securities distributed are homogeneous and liquid. This is deemed to be complied with when the securities are admitted to trading on a regulated market or otherwise will be so admitted within the following year, or when the issuer provides adequate guarantees of liquidity. The rule described in this paragraph shall likewise apply to the return of contributions to shareholders in the event of a reduction in share capital, which may be paid out in kind, in whole or in part, provided the goods or securities distributed are homogeneous and liquid in accordance with the above.

The Board of Directors can approve interim dividend payments without a prior shareholder vote on the issue. However, under those circumstances, the dividend is limited to distributable net profits of the current year and is subject to certain additional legal requirements.

Unclaimed dividends revert to us within five years after they become due.

Payment of Taxes

Holders of Shares will be responsible for any taxes or other governmental charges payable on their Shares, including any taxes payable on transfer. The paying agent or the transfer agent, as the case may be, may, and upon instruction from Telefónica, will:

Liquidation Rights

Under Spanish law, upon our liquidation, the shareholders would be entitled to receive, in proportion to the nominal value of their Shares, any assets remaining after the payment of our debts and taxes and liquidation expenses.

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, Telefónica Emisiones, S.A.U. certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form F-3 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of Madrid, Spain, on April 20, 2023.

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS that each of the individuals whose signature appears below (whether as a Director or officer of Telefónica Emisiones, S.A.U. as authorized representative of Telefónica Emisiones, S.A.U. or otherwise) constitutes and appoints Carlos David Maroto Sobrado and Francisco Javier Ariza Garrote, and each of them (with full power to each of them to act alone), his true and lawful attorneys-in-fact and agent, with full power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) and supplements to this registration statement or any registration statement in connection herewith that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

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