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15 Income taxes

Current, deferred and prepaid taxes63,57577,637-14,062

The impact of income taxes on the pre-tax profit is 30.9%, compared to 47.7% in 2010.

The taxes for the financial year 2010 amount to Euro 63,575 thousand and include the non-recurring positive effects of Euro 25,061 thousand against the sheltering by substitute tax of the higher values recorded on the balance sheet following extraordinary transactions already carried out in financial year 2009 pursuant and consequent to art. 176, subsection 2-ter, of the Italian Income Tax Code regarding taxes for the year 2009 totalling Euro 77,637 thousand.

In calculating the taxes for the year, the effects deriving from the IAS tax reform introduced by Italian Law No. 244 of 24 December 2007 and by the relevant implementation decree,  Ministerial Decree no. 48 of 1 April 2009 were duly considered, and in particular the enhanced principle of derivation set forth under Article 83 of the Consolidation Act on Income Taxes that now envisages that “the criteria of qualification, time allocation and classification in the financial statements envisaged by the international accounting standards” apply to parties that apply the international accounting standards, also in derogation of the provisions of the Consolidation Act on Income Taxes.

Information on the tax moratorium

In accordance with Law Decree no. 10 of 15 February 2007, subsequently converted into Law no. 46 of 6 April 2007, governing the terms for reimbursement of government aid declared illegitimate by the Ruling of the European Commission no. 2003/193 dated 5 June 2002, on 6 April 2007 Hera Spa (with respect to the position regarding the former Seabo S.p.a) was served the notices/orders issued by the Inland Revenue office responsible for the area, demanding the payment of a total amount of Euro 22,313 thousand for the four tax periods involved in the recovery.  On 31 May 2007 the Hera Spa submitted an appeal against these notices/orders to the Bologna Province Tax Commission, also asking for a suspension of the enforcement of the payment orders. On 6 July 2007, the Bologna provincial tax commission issued ordinances accepting the suspension requests made by the company, scheduling a hearing of the case for 13 December 2007.  On 19 April 2008, notification was made that the appeals had been rejected, except for that relating to the tax period 1997.  In this case, the commission recognised the legitimacy of the deduction of tax withheld and of the tax credit carried over from previous years. Partial relief having been obtained on 2 May 2008 for the 1997 tax period, after recognition of the aforementioned retentions and credits, for Euro 3,738 thousand, a total payment of Euro 17,400 thousand was made. Subsequently, on 11 September 2008, the Inland Revenue office sent an additional payment request for interest related to the suspension period, paid in December 2008, for Euro 660 thousand. 

On 3 October 2008, appeals were filed against above-mentioned rulings. On 29 January 2010 the rulings, issued on 21 January 2010, were filed. Based on these rulings, the Emilia Romagna Tax Commission rejected the appeals submitted by Hera Spa and reformed the first-instance rulings, rejecting the deduction made in the income tax returns submitted and related to withholding taxes paid. To this regard, please note that on 30 August 2010 the relevant payment requests were notified, for which Euro 7,455 thousand in capital, interest, collection fees and notification costs were paid on 27 October 2010. The petitions to the Supreme Court were presented on 29 April 2010.

Please also note that, under the terms of agreements made between shareholders (and specifically reported in the IPO prospectus) at the time of the incorporation giving rise to the creation of Hera Spa, local authorities undertook “to compensate Hera Spa for any cost, loss or damage sustained by the same in relation to mandatory regulatory measures revoking tax benefits that the company and the companies taking part in the incorporation have enjoyed”. Consequently no cost has been booked in this regard. It is also worth noting that on 31 December 2007, some Municipality Shareholders set up suitable guarantees in favour of the Company through the prepayments of amounts due to Hera Spa. Following the negative outcome of the first instance judgement and following payment of the tax assessments, debit/credit positions were therefore defined with respect to each Municipality.

On 31 December 2010, outstanding receivables for collection, related to all payments made by Hera Spa for the position related to the former Seabo, up to 27 October 2010, amounted to Euro 2,029 thousand.

Regarding the former Meta Modena, merged into Hera with effect as from 31 December 2005, for which there was no indemnity mentioned above, pursuant to and in accordance with the Law Decree no. 10 of 15 February 2007, on 10 May 2007 the Inland Revenue Office of Modena served Hera Spa with notices and injunctions for the recovery of state aid relating to the tax periods 1997, 1998 and 1999. On 6 June 2007, Hera Spa filed self-defence petitions requesting the amendment of the notices and injunctions.  On 11 June 2007 the Inland Revenue office of Modena issued partial self-defence measures relating to the communicated notices/orders, requesting the Company, as a way of settling the issue, the payment of a minimal amount resulting from the failure to acknowledge withholding taxes suffered.

Updates 2008 – Law Decree no. 185/2008

Art. 24 of Law Decree no. 185 of 29 November 2008, converted with amendments into Law no. 2 of 28 January 2009, charged the Inland Revenue Office to recover aid equivalent to unpaid taxes and related interest "in order to totally implement" the afore-mentioned decision of the commission on 5 June 2002. As for this provision, on 30 April 2009, the Emilia Romagna Regional Management - Large Taxpayers Office, sent three assessment notices on the position of the former Meta for the 1997, 1998 and 1999 tax periods, taking due account of indications contained in the opinion expressed by the Presidency of the Council of Ministers on 28 April 2009, shared with the Attorney General, with special reference to the exclusion from the taxable basis of the following:

  • profits, which were reissued into the public circuit, as they were distributed, under the form of dividends, to public bodies shareholders.
  • the portion of income regarding the electricity segment (net of profits distributed and related to the electricity segment itself).

On 8 May 2009, the amount of Euro 4,823 thousand was paid. On 7 July 2009, the company lodged appeals against the assessment notices at the Bologna provincial tax commission, asking for their cancellation. The hearing to discuss the case, already scheduled for 17 May 2010, has been postponed to 14 February 2011 while waiting for the meeting for the proceedings to discuss the supplemental assessment notices, pending before another section of the same provincial tax commission,  commented on hereunder.

Always with reference to Art. 24 of the above-mentioned Law Decree no. 185 of 29 November 2008, as regards the position related to the former Seabo, on 12 June 2009 Hera filed before the Inland Revenue Office - Bologna 3 Office - and the Emilia Romagna Regional Management - Large Taxpayers Office, a request for partial cancellation of the notices and injunctions received on 6 April 2007 regarding tax recovery for years 1997, 1998 and 1999 on the de-taxation of profits distributed to Public Bodies, according to instructions contained in the opinion issued on 28 April 2009 by the Presidency of the Council of Ministers. As of today, the hearing to discuss on the request of cancellation has not been scheduled yet.

For more exhaustive information, it should be noted that on 11 June 2009 the First-Instance Court of the European Community issued rulings regarding the appeals filed by the Italian Government, together with some companies (A2A, Acea, Iride, etc.) against the decision of the European Commission 2003/193/EC. The decisions of the European Community court rejected, or declared not receivable, all appeals filed, thus confirming the legitimacy of the above-mentioned decision of the European Commission. Hera Spa did not take part in the ruling in question for none of the positions mentioned above.

Updates 2009 – Law Decree no. 135/2009

Art. 19 of the Law Decree no. 135 of 25 September 2009, published in the O.G. no. 223 of 25 September 2009, added subsection 1-bis to Art. 24 of the Law Decree no. 185 of 29 November 2008, setting out the following:

  • while calculating the tax basis, in order to recover aid equivalent to unpaid taxes and related interest, capital gains resulting from extraordinary transactions are not relevant;
  • for the purposes of a correct calculation of the taxable basis, assessments issued by the Inland Revenue office can be however supplemented or increased through new notices;
  • the payment of amounts due based on the above-mentioned supplementary assessments should be made within the fifteenth day after the notification date of these assessments.

On 2 October 2009, the Emilia Romagna Regional Management – Large Taxpayers Office – sent two further assessment notices for the former company Meta Spa, regarding the 1998 and 1999 tax periods, as a “supplement" to notices already sent on 30 April 2009, in order to cancel two deductions made and previously accepted according to the opinion, shared by the Attorney General, expressed on 28 April 2009 by the Presidency of the Council of Ministers on profits, which were reissued into the public circuit due to the distribution to public bodies shareholders, and the further portion of profits made in the electricity segment. The amounts required total Euro 22,751 thousand, of which Euro 12,590 thousand related to the capital and Euro 10,161 thousand related to interest.

On the same date, the Emilia Romagna Regional Management - Large Taxpayers Office – sent four assessment notices for the former company Seabo Spa, regarding the 1997, 1998, 1999 tax periods – first half year and 1999 – second half year, in order to adopt the remarks already expressed in the report of 17 October 2005. These remarks could not be taken into account when the notices and injunctions were issued on 6 April 2007, as, at that time, Art. 1 of the Law Decree no. 10 of 15 February 2007 granted the Inland Revenue Office powers of “simple settlement” of the income returns submitted by the taxpayer.

The amounts required for the former company Seabo, amounted to Euro 759 thousand, of which Euro 386 thousand was for the capital and Euro 373 thousand was for interest.

The total amounts required, by effect of the proceeding provided for by Art. 19 of Law Decree no. 135/2009, amounted therefore to Euro 23,510 thousand, and were paid on 20 October 2009.

On 27 November 2009, the Company filed all appeals to the Bologna provincial tax commission to cancel all assessment notices of 2 October 2009, regarding the positions of both former Seabo and former Meta.

The appearance before the court for the six proceedings mentioned above took place on 1 December 2009 and the public hearing was held on 26 January 2011 for the positions of the former Seabo and on 14 February 2011 for all of the reunified positions of the former Meta, with all proceedings adjourned.

Except for the still-outstanding disputes, aimed at recovering what has already been paid, the entire "tax moratorium" situation shall be considered concluded, since future disbursements which create financial impacts on the Group's accounts are not expected.

Report on the assessment notices issued in 2010

Seven notices were issued to Hera S.p.a. and Hera Comm. on 19 November and 22 December 2010 in their capacities of beneficiary companies of the total spin-off of the company Hera Ferrara S.r.l. effective as at 31 December 2009. Said notices for first and second assessment levels concerning IRES and IRAP followed the tax audit on the Ferrara territorial operative company for tax years 2005, 2006 and 2007 that came to an end on 16 September 2010 with the report of the Ferrara Tax Police Squad.

The observations basically concerned a mere error that took place in financial year 2005 in the intercompany costs accounting between Hera Ferrara S.r.l. and Hera S.p.a., which caused a double recording of the same cost amounting to about Euro 200,000 thousand. Nevertheless, after said error of double recording of the same cost was discovered in the following financial year 2006, it was corrected by recording a contingent asset of the same amount, duly subject to taxation. It ensued that in force of the consolidated taxation system, the effect of the double deduction of the cost during tax year 2005 was eliminated by the recording, and subsequent taxation, of the cost as a contingent asset.

On 13 January 2011 assessment motions were proposed with adherence to the Emilia Romagna Regional Management, Large Taxpayers Office, pursuant to art. 6, subsection 2, of Legislative Decree no. 218 of 1997, and the debate with the office is currently in progress. It is believed that it can have a positive effect for the company.

Three assessment notices for IRES, IRAP and VAT concerning tax year 2005 were issued to Hera S.p.a. on 29 December 2010 following the tax audit on tax year 2005 that was completed with the report dated 1 October 2010 drawn up by the Financial Police, Bologna Tax Police Squad. The subject matter of the report is a finding regarding intercompany services (so-called management expenses regarding use of the trademark) supplied by Hera S.p.a. in its capacity of parent company of the Hera Group to the Territorial Operating Company subsidiary of Forl-Cesena, Hera Forl-Cesena S.r.l. 

Although it found the cost split criteria initially established by the intercompany contracts legitimate, the Tax Authorities question the subsequent reduction of the recharge percentages of the management expenses, generally called management fees, following a subsequent agreement that the parties entered into which adjusted the criteria initially envisaged.  In the opinion of the Tax Authorities, said adjustment reducing fees due for the services that the holding company supplied entailed a tax dodging on the part of Hera S.p.a since the lesser recharge for management fees to Sot of Forl-Cesena resulted in said costs remaining charged to Hera S.p.a., which would have therefore illegitimately deducted them when calculating its IRES and IRAP tax base in the absence of the inherence principle. Likewise, the failure to charge the fee for using the "Hera Group" trademark would have brought about a lower revenue for Hera S.p.a. compared to what was originally foresee in the intercompany agreement, and so IRES, IRAP and VAT tax dodging allegedly occurred in this case as well in the opinion of the office.

The company proposed an assessment in February 2011 with adherence to the Emilia Romagna Regional Management, Large Taxpayers Office, pursuant to art. 6, subsection 2, of Legislative Decree no. 218 of 1997 and is currently waiting to receive the invitation to appear to open the debate.

The Company decided it did not have to make any allocation to the provision for risks for the assessment notices in question as it considers the alleged violations charged against the Company groundless, and in particular considering the fiscal damage due to unpaid taxes inexistent as it believes it should consider the tax dodging the company is accused of as being inexistent; this is based on the circumstance that the companies involved adhered to the group taxation system for the period in question pursuant to articles 117 et seq. of the Italian Income Tax Code, according to which the tax actually due to the Tax Authorities is liquidated in the income tax return of the consolidation, based on the algebraic sum total of the taxable incomes of the individual companies adhering to the system. It is therefore believed none of the individual companies can be found to have committed tax dodging, possibly only on the fiscal unit level.

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