Tax moratorium

As regards the dispute arising as a result of the final decision reached by the European Commission in June 2002, the situation has remained unchanged during the year: in fact, an appeal submitted against the decision, taken in June 2009, of the Court of First Instance, which was unfavourable for claimants including ACEA, is still pending.

It should be borne in mind that the Commission considered as state aid, incompatible with the common market, both the three-year exemption from corporate income taxes and the loans at below market rates from Cassa Depositi e Prestiti between 1994 and 1998.

Recovery of the alleged state aid was launched essentially by the Italian State on 15 February 2007, when Law Decree no. 10/2007 was published in the Official Journal. Article 1 of this decree – which was converted into law on 6 April 2007 (Law 46) – envisages yet another change (the third since April 2005) to the procedure for recovering the aid.

The aforementioned legislation envisages that recovery of the aid, represented by unpaid taxes and the related interest, should be carried out by the tax authorities, which are required (i) to calculate the taxes based on the information sent to local authorities and the tax declarations submitted by the companies that benefited from the aid pursuant to the legislation in force prior to the changes introduced by paragraph 132 of article 1 of Law 266 of 23 December 2005, and (ii) to issue a specific notice within 90 days of the date of entry into force of the decree (15

May 2007) containing, for each relevant tax year, the payment demand for the sums due, making a definitive entry in the delinquent tax list should payment not be made within thirty days of the notice date.

The decree expressly prohibits any term of payment extensions or administrative suspensions. In contrast, the payment demands may be appealed before the tax commissions and the demands suspended on a cautionary basis only under clearly defined circumstances and subject to verification of the seriousness and irreparability of the prejudice suffered by the appellant.

Based on the above legislation, on 13 April 2007 the tax authorities issued payment demands pursuant to article 1 of the decree, with a view to recovering the aid represented by unpaid taxes for the years 1998 and 1999. These taxes amounted to 6,362 thousand euros, on which interest of 3,022 thousand euros was also due. ACEA paid the amounts due within the related terms.

Law Decree 185/2008 was published in the Official Journal on 29 November 2008. Article 24 of this decree – which was subsequently converted into Law 2/2009 – establishes that, in order to fully implement the European Commission’s Decision 2003/193/EC, recovery should be carried out by the tax authorities pursuant to article 1, paragraph 1 of Law Decree 10/2007, according to the standards and ordinary procedures applied in the assessment and collection of income taxes. Recovery is to take place within 120 days of the entry into force of the Law Decree (28 March 2009) via a notice of assessment that should take account of any amounts already paid to the tax authorities pursuant to article 1, paragraph 2 of Law Decree 10/2007. Any term of payment extensions or administrative or legal suspensions are prohibited, and any amounts paid to the tax authorities on the basis of the provisions of Law 289/2002 and subsequent amendments and additions (which introduced a tax amnesty) bear no relevance to the recovery.

On 30 April 2009, ACEA was notified of tax assessments for the years 1998 and 1999 by the tax authorities, issued as a result of the provisions of article 24 of Law decree no. 185/2008. On 6 May 2009, ACEA paid the sum of 23,064 thousand euros (including interest), covered by a provision set aside (31 million euros) in 2008. It should be noted that the sums paid are added to the amount paid in 2007 (totalling 9 million euros including interest) on the basis of injunctions sent by the tax authorities in compliance with article 1 of Law decree no. 10/2007.

On 25 September 2009 Law Decree no. 135 was approved – also known as the Ronchi Decree – converted with amendments into law no. 166 of 20 November 2009 – which, among other things, introduces paragraph 1 bis to article 24 of Law Decree 185/2008. Said paragraph (i) specifies the calculation of the tax base of aid by essentially excluding the sole gains deriving from extraordinary operations carried out by the companies affected by recovery regulations, (ii) authorises the tax authorities to issue and notify new tax assessments which supplement or adjust upwards those notified on the basis of the old text of article 24 of Law Decree 185/2008, (iii) establishes the payment term as fifteen days from notification of the new assessments.

On 2 October 2009, the tax authorities notified ACEA of two tax assessments for 1998 and 1999 for a total amount of 86,806 thousand euros (including interest) which were paid by ACEA on 19 October 2009.
ACEA has appealed the payment demands of 2007 and the 2009 tax assessments before the Rome Tax Commission; a hearing was held on 3 December relating to the appeals submitted against the 2007 payment demands: the outcome of the case is still unknown.

Total aid repaid by ACEA amounted to 119,279 thousand euros (including interest). ACEA deems that the payments made bring the matter to a definitive end.

VAT

On the basis of Ministry of Finance guidelines, the Aziende Speciali incorporated under the terms of articles 22 and 23 of Law 142 of 8 June 1990, contrary to previous indications from the same ministry, should have applied VAT to transactions with their local Municipality during the period of the tax moratorium. According to such an interpretation, with the acquisition of legal status the above-mentioned Aziende Speciali, even though subject to a tax moratorium, were bound to fulfil their VAT obligations. Furthermore, on the basis of the arguments in the Ministry’s guidelines, the Aziende Speciali could have acquired the status of legal entities as they fulfilled the initial acts designed to achieve such status. Recent sentences have not upheld the arguments put forward by the Ministry of Finance with regard to VAT. The Directors of ACEA SpA, backed by an authoritative opinion on tax matters, do not consider that ACEA SpA will be obliged to assume ope legis the tax commitments of the former Azienda Speciale which, as recognised by Roma Capitale, remain the responsibility of the conferee (Roma Capitale). 

ACEA tax inspection

In September 2007 the Tax Authorities launched an assessment on ACEA of the tax loss deriving from the sale of Atlanet pursuant to Article 1, paragraph 4 of Law Decree 209/2002.

The scope of the assessment was extended to include the corporate restructuring that took place in 2004 and, in particular, the sale to Arse of 50% of the investment in ACEA Distribuzione. This is based on application of article 36, paragraph 11 of Law Decree 223/2006, which amended the legislation governing the use of accumulated tax losses under the tax transparency regime, and introducing the application of anti-evasion measures to transactions carried out prior to the above amendment.

The audit was completed in February 2009, with recognition of the tax losses deriving from the sale of Atlanet and notice of an alleged irregularity pursuant to article 37 bis of Presidential Decree 600/1973 sent to the Tax Office for the Lazio region.

Following the aforementioned notification, and pursuant to provisions set out by Art. 37 bis, paragraph 4 of the Presidential Decree 600/1973, in December 2009, ACEA received, from the Lazio Regional Department, a call for clarification on the transaction being audited.

In February 2010, following the aforementioned request, ACEA submitted to the Tax Authority the reasons why it deemed that the alleged irregularity of elusion was groundless. Aside from the reasons supporting the groundlessness of the irregularity, however, ACEA evaluated the possibility of reaching a settlement with approval for the irregularity, in order to avert the risk deriving from the tax dispute that could arise on this issue. For the above-mentioned reason, on 12 July 2010 ACEA filed in an assessment request with approval and asked the Tax Office that, in issuing the assessment proposal with approval or the assessment notice, no administrative fine be applied as the conduct of the Company is not punishable for the following reasons:

  • the objective uncertainty, by reason of the fact that the reference legal framework ascribable to the introduction, in 2004, of a radical reform of the tax regime for companies was changed in 2006, when a clear legislative reference to the application of article 37 bis was expressed (at that time the option had already been exercised). Contrasting interpretations and the ambiguity of the same official interpretations should be also added, which led to the assumption, also based on an opinion expressed by an authoritative source, that the transactions aimed at modifying the requirements to access the transparency regime were legitimate,
  • the mistaken fact, insofar as the company, while carrying out the transaction under evaluation, deemed (and still deems) that it was supported by valid economic reasons.

On 14 July 2010, ACEA and the Tax Authority subscribed an assessment deed with approval, in which the above-mentioned irregularity amounted to 39.8 million euros, including interest and excluding fines.

It should be noted that, in the 2009 Consolidated Financial Statements, the allocation made (36 million euros) was intended for tax purposes only. Interest has therefore been allocated to financial management in these consolidated financial statements. The financial impact will involve three financial years as ACEA asked for the payment of instalments, subject to the issue of a bank guarantee.

This irregularity also includes the objection raised against ACEA on the consolidation adjustments regarding dividends applied in the 2006 tax return (for the 2005 tax year). Further details on the matter are provided in the 2009 Consolidated Financial Statements.

SAO tax inspection

In October 2008 the tax authorities issued two notices of assessment to SAO, amounting to 5.8 million euros in taxes and 5.7 million euros in penalties.

These notices of assessment regard the 2003 and 2004 tax years and derives from criminal proceedings launched by the Orvieto District Attorney’s Office. This action, which is still pending before the Court of Perugia, regards transfers of waste from the Campania region in the aforementioned 2003-2004 period, based on a planning agreement executed at that time by the presidents of the Campania and Umbria regional authorities and the subsequent management of the Orvieto landfill.

Although one of the years involved in the tax inspection notices (2004) was already subject to a tax inspection, the Tax Authorities deemed that it was possible to re-open the inspection, following the ruling under which the Court of Orvieto, in criminal proceedings, declared the Court of Perugia to instead hold competence.

The notices of assessment regards taxation of the costs incurred during the two years in relation to the above transfers of waste, based on the fact that such transfers are now considered illegal on the basis of the mere existence of criminal proceedings and despite the absence of provisions from the Judge regarding the verification of the existence of the offences for which to proceed.

On 12 December 2008 the company submitted separate appeals against the notices of assessment.
In May 2009, the tax commission upheld the requests for the suspension of the notices of assessment submitted by the company and, in November 2009, at the first hearing on the matter, combined the two appeals and, in upholding the objection raised, asked the Constitutional Court to rule on the issue of legitimacy regarding the legislation which generated the costs, non-deductible for tax purposes, incurred in the years 2003 and 2004 (article 14, paragraph 4 bis, Law of 537/93).

The hearing was held at the Constitutional Court on 8 February 2011, and an outcome is still pending.

It has been deemed that the acts of the Tax Authorities are illegitimate and that there is a remote risk of payment of the entire sum for which the previous shareholder is liable (Enertad now Erg Renew) on the basis of the guarantees issued in the purchase/sale contract and the provisions in the arbitration award issued by the Board of Arbitrators set up, upon request of ACEA S.p.A., in accordance with said contract.

Tax inspection on Marco Polo

On 23 June 2010, the Tax Authority notified the associated company Marco Polo of a Report of Findings relating to the general tax inspection started in March 2010. The irregularities found by the Tax Authority totalled 6.4 million euros, plus interest and fines and essentially concern objections to the equalisation calculation method of fees due to Shareholders of ACEA and Ama, based on the service contracts entered into. As for these objections, the Company deems that its approach is largely defendable.

AceaElectrabel Trading tax inspection

On 15 September 2010 the Guardia di Finanza – Nucleo Polizia Tributaria di Roma (Italian Financial Police – Rome Tax Squad) opened a tax inspection relating to direct taxes for 2008, subsequently extended to the years 2005, 2006, 2007 and 2009 with reference to the so-called off-balance sheet transactions (article 112 of Income Tax Consolidation Act). In November 2010, tax inspections were concluded for the 2005 tax year and the Guardia di Finanza notified AceaElectrabel Trading and ACEA, as the consolidating entity, of a Report on Findings, ascertaining a higher taxable base, (Ires and Irap – corporate income tax and regional business tax) of 14.2 million euros, relating to the fair value of solely hedging instruments with a positive fair value as at 31 December 2005, producing effects over subsequent years. In substance, the tax inspector confirmed that the disclosures made by no IAS adopters - AceaElectrabel Trading is one – in their financial statements in compliance with OIC 3 assume tax relevance pursuant to and in accordance with article 112 of the Income Tax Consolidation Act. Inspections are currently being performed for other years.

As for these objections, the Company deems that its approach is largely defendable.

On the basis of the Framework Agreement signed in December by ACEA and GDF Suez Energia Italia, ACEA is indemnified and held harmless in relation to any amount it is required to pay, also temporarily, as consolidating entity.