"The European Commission has decided that Electricite de France (EDF), the main electricity provider in France, has been granted tax breaks incompatible with EU rules on State aid," the European Union's executive body said in a statement.
The case has wormed its way through the EU court and regulatory system since 2003 and the decision by the EU sent EDF's shares plunging by 2.8 percent in afternoon trading on the Paris stock exchange.
EDF is now an international player in providing electricity, relying on France's 58 nuclear reactors, as well as developing new plants, notably the controversial Hinkley Point project in Britain.
"The Commission?s investigation confirmed that EDF received an individual, unjustified tax exemption which gave it an advantage to the detriment of its competitors, in breach of EU State aid rules," EU Competition Commissioner Margrethe Vestager said in a statement.
At heart of the ruling is a 1997 decision by French tax authorities to exempt EDF from a decade's worth of corporation tax on investments in France's high-voltage transmission network.
The Commission said this tax break, nominally available to any company, was unjustified as no private company would have made the same, highly unprofitable investment, AFP reported.
"It is therefore state aid that has strengthened EDF's position to the detriment of its competitors, without furthering any objective of common interest," the commission said.
French Economy Minister Emmanuel Macron told reporters in Paris that the EU's decision would in no way "fragilise" the finances of EDF.
In 1997, EDF was a fully-fledged unit of the French state, with no meaningful competitor on the French market.
Today EDF is a publically traded company that competes for electricity markets worldwide, but remains 85 percent owned by the French state.