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14 Other non-operating costs

 

This item is made up as follows:

 20112010Changes
Current taxes (Ires, Irap and substitute tax)120,709128,570-7,861
Deferred taxes-3,935-57,12553,190
Prepaid taxes-22,303-7,870-14,433
Total94,47163,57530,896

The taxes for the financial year 2011 amount to Euro 94,471 thousand and include the non-recurring positive effects of Euro 7,567 thousand, including Euro 1,215 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, and Euro 6,352 thousand relating to the realignment of controlling interests pursuant to art. 23, sub-sections 12-14, of Legislative Decree no. 98/2011 and art. 20 of Legislative Decree no. 201/2011. In 2010 taxes for the year amounted to Euro 63,575 thousand and included the positive non-recurring effects, for Euro 25,061 thousand. The increase in the tax rate for the year 2011, 42.70%, compared to 2010, 30.92%, is attributable mainly to:

  • the lower incidence of the positive non-recurring effects relating to sheltering operations carried out in 2011 compared to those in 2010;
  • the increase in the incidence of IRAP due to the increase of 0.30% in the rate applicable to concessionary companies pursuant to Legislative Decree 98/2011, equal to around Euro 1,000 thousand;
  • the effect of the Ires surcharge, so-called "Robin tax", (Euro 11,624 thousand for 2011 and Euro 7,714 thousand for 2010), in relation to which Legislative Decree 138/2011 made provision for an increase of 4% for the 2011-2013 three-year period and involved an increase in taxation of Euro 3,910 thousand in 2011.


Current taxes are broken down as follows:

Current taxes20112010Changes
Ires83,20174,1979,004
Irap30,68028,8041,876
Substitute tax Law 244/07 - recapture EC framework-159-17920
Substitute tax “split perimeter”3233230
Substitute tax6,66425,425-18,761
Total120,709128,570-7,861

The theoretical rate determined on the basis of the configuration of taxable income for the purposes of IRES is equal to 27.50%; the reconciliation with the effective rate is provided below.

Statement of reconciliation between theoretical and effective tax rateIncome statement valuePercentage value of tax effect
Pre-tax result 221,226 
Ires calculation  
Ordinary rate -60,837 -27.50%
Robin Tax surcharge-10,228-4.60%
Dividends-1,128-0.50%
Amortisation of goodwill1,0180.50%
Other increases/(decreases)280.00%
Irap and other current taxes  
Irap -30,514 -13.80%
Substitute tax7,1833.20%
Foreign current taxes80.00%
     
Effective rate -94,471 -42.70%

The data are only provided for Ires purposes in view of the fact that the special Irap regulations render irrelevant a reconciliation between the theoretical tax charge derived from balance sheet data and the effective tax charge determined on the basis of tax regulations.

The prepaid and deferred taxes relating to the year 2011 refer to the following variations between taxable income and profit recorded in the financial statements.

Details of temporary differences (receivables)31-dec-1131-dec-10
 temporary
differences
tax effect acquisitions/
sales
temporary
differences
tax effect acquisitions/
sales
Prepaid taxes with an impact on the income statement:       
Bad debt provision87,63628,271  60,95518,940 
Provisions for risks and charges71,64213,904   69,503 14,000  
Provisions for employee benefits3,313911   5,600 1,667  
Amortisation and depreciation96,83728,639   88,772 26,131  
Realignment of equity investments36,66012,217   - -  
Other 50,979 11,314 46,487 11,520 
Total347,06795,256694271,31772,258 
Amount credited (charged) to the income statement 22,303   - 
Prepaid taxes with an impact on the statement of comprehensive income:       
Cash flow hedges16,2815,731 20,9486,953 
Total16,2815,731 20,9486,953 
Amount credited (charged) to the statement of comprehensive income   -1,222     -  
Total tax effect (book value)   100,987     79,211  

 

Details of temporary differences (provision)31-dec-1131-dec-10
  temporary
differences
tax effect acquisitions/
sales
temporary
differences
tax effect acquisitions/
sales
Deferred taxes with an impact on the income statement:      
Provisions for risks and charges64,46120,082  72,088 22,356  
Provisions for employee benefits 16,882 5,184   16,429 5,109  
Tangible and intangible assets 118,766 39,126   107,662 34,738  
Leasing 8,349 2,625   8,646 2,694  
Capital gains with instalments3,323914   5,216 1,445  
Other30,7678,126   37,696 9,794  
Total242,54876,0573,855247,73776,136 
Amount credited (charged) to the income statement 3,935  - 
Deferred taxes with an impact on the statement of comprehensive income:      
Cash flow hedges-- 267 
Total-- 267 
Amount credited (charged) to the statement of comprehensive income   7     -  
Total tax effect (book value)   76,057     76,143  

In calculating the taxes for the year, the effects deriving from the IAS tax reform introduced by Italian Law 244 of 24 December 2007 were duly considered, and of the associated implementing decrees, Ministerial Decree no. 48 of 1 April 2009, and Ministerial Decree of 8 June 2011, coordination of the international accounting standards with the rules of calculation of the Ires and Irap taxable base, envisaged under art. 4, subsection 7-quater, of Legislative Decree 38/2005; and in particular the strengthened principle of derivation set forth under art. 83 of the Consolidation Act on Income Taxes that now envisages that "the criteria of qualification, time allocation and classification in the financial statements required 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 Spa) 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 tax periods from 1997 to 1999 involved in the recovery.
The appeals submitted to the Provincial Tax Commission of Bologna were rejected by means of rulings dated 19 April 2008, except for that relating to the tax period 2007. In this case, the commission recognised the legitimacy of the deduction of tax withheld and of the tax credit carried over from previous years amounting to Euro 3,738 thousand; therefore, in June 2008, a total of Euro 17,400 thousand was paid.
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.
Appeals were presented on 3 October 2008, rejected by rulings filed on 29 January 2010, by the Regional Tax Commission of Emilia Romagna which, by amending the first instance rulings, derecognised the legitimacy of the deduction of tax withheld and of the tax credit for tax periods before 2007; therefore, on 27 October 2010, an additional Euro 7,455 thousand was paid in this respect.
The appeals were submitted to the Supreme Court on 29 April 2010, which were discussed on 24 January 2012.

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". Therefore, in relation to the recovery no cost was accounted for, and as at 31 December 2011, outstanding receivables for collection, related to all payments made by Hera Spa for the position related to the former Seabo Spa, amount to Euro 1,061 thousand as at the date of these financial statements.

Law Decree no. 185/2008 and Law Decree no. 135/2009
Art. 24 of Law Decree no. 185 of 29 November 2008, converted with amendments into Law no. 2 of 28 January 2009, intervened "in order to fully implement" the repeatedly mentioned decision of the Commission on 5 June 2002. As for this provision, on 30 April 2009, the Emilia Romagna Regional Management sent three tax assessment notices on the position of the former Meta for the 1997, 1998 and 1999 tax periods, for which Euro 4,823 thousand was paid on 8 May 2009. Appeals were filed with the Provincial Tax Commission of Bologna against the aforementioned assessment notices on 7 July 2009; at the hearing on 14 February 2011, following the reunification with proceedings to deal with additional assessment notices, pending before another section of the same provincial tax commission, commented on hereunder, all proceedings were adjourned so that the parties could attempt to reach a reconciliation.

Art. 24 of the Law Decree no. 185 of 29 November 2008, was then amended by art. 19 of the Law Decree no. 135 of 25 September 2009, which added subsection 1-bis to the above-mentioned art. 24. On 2 October 2009, the Emilia Romagna Regional Management sent two 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 requested total Euro 22,751 thousand.

On the same date, the Emilia Romagna Regional Management sent four assessment notices for the former company Seabo Spa, regarding the 1997, 1998, 1999 tax periods, in order to acknowledge the irregularities already contained in the report on findings of 17 October 2005. These irregularities 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 tax returns submitted by the taxpayer. The amounts required for the former company Seabo, amounted to Euro 759 thousand.

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. As regards the former Seabo position, discussion at the public hearing took place on 26 January 2011, in which the Board adjourned the case to attempt a reconciliation between the parties; the case was heard at the hearing on 15 February 2012 and ruling no. 29/17/12 handed down by the Provincial Tax Commission of Bologna, Section no. 17, filed on 23/02/2012, which partially upheld the company's appeal with reference to the recoveries concerning landfill post-closure provisions.

As regards the ex Meta case, discussion at the public hearing occurred on 14 February 2011, with the case adjourned for all proceedings to attempt a reconciliation between the parties. Discussion of the disputes could be set by the end of 2012.

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 Spa 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 Srl 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 area operating company for tax years 2005, 2006 and 2007 that came to an end on 16 September 2010 with the report on findings of the Ferrara Tax Police Squad.
The irregularities basically concerned a mere error that took place in financial year 2005 in the intercompany costs accounting between Hera Ferrara Srl and Hera Spa, which caused a double recording of the same cost amounting to about Euro 200 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, tax settlement proposals were submitted to the Emilia Romagna Regional Management, Large Taxpayers Office, pursuant to art. 6, subsection 2, of Legislative Decree no. 218 of 1997, which concluded positively for the companies, solely involving the payment of penalties reduced by one quarter.

With reference to said event, on 27 December 2011, the company was notified of a tax assessment for VAT purposes regarding the aforementioned accounting error, amounting to Euro 40 thousand; on 29 February 2010, the company submitted an appeal relating solely to tax, then settled the penalties under facilitated terms; discussions on the dispute could take place by the end of 2012.

Three assessment notices for IRES, IRAP and VAT concerning tax year 2005 were issued to Hera Spa on 29 December 2010 following the tax audit on tax year 2005 that was completed with the report on findings dated 1 October 2010, drawn up by the Financial Police, Bologna Tax Police Squad; the subject matter of the report is an irregularity 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 Area Operating Company subsidiary of Forlì-Cesena, Hera Forlì-Cesena Srl.
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 tax evasion on the part of Hera Spa, since the lower recharge of management fees to Sot of Forlì-Cesena ensured said costs remained the responsibility of Hera Spa, 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 foreseen in the intercompany agreement, and so IRES, IRAP and VAT tax evasion allegedly occurred in this case as well in the opinion of the office. On 18 February 2011, tax settlement proposals were submitted to the Emilia Romagna Regional Management, Large Taxpayers Office, pursuant to art. 6, subsection 2, of Legislative Decree no. 218 of 1997, which concluded negatively for the company. Therefore, on 20 May 2011, the related appeals were submitted to the Provincial Tax Commission of Bologna.
Following said appeals presented by the company, the Tax Authorities, by means of act notified on 17 August 2011, partially cancelled, under the appeal process, the payment orders already issued in respect of the IRES component regarding royalties for use of the trademark, and for the entire recovery effected for VAT purposes. The company is still waiting for a date to be set for the hearing before the Provincial Tax Commission of Bologna. Pending the tax proceedings, the company was notified of a tax payment request on 4 January 2012, for the provisional recording of Euro 653 thousand, which the company paid on 29 February 2012.
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. 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 paid in the consolidated income tax return, 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 evasion.

Information on the tax assessments communicated in the 2011 tax period

On 29 September 2011, a tax assessment commenced at the company regarding income taxes and IRAP, conducted by the Financial Police, Bologna Tax Police Squad. The inspections, still ongoing, examined, for IRES and IRAP purposes, the tax years from 2006 to 2010, with a particular focus on the company's economic-financial transactions with public service AATOs. On 24 October 2011, the report on findings solely relating to the 2006 tax year was drafted and issued to the company, limited to the alleged incorrect tax accounting of AATO running costs. According to the contents of the report on findings, the aforementioned costs, relating solely to the 2006 tax year, totalling Euro 2,581 thousand, regarding the functioning of the AATOs, would be considered, on the basis of the joint provisions of article 148, subsection 4, and article 154, subsection 1 of Legislative Decree no. 152 of 3 April 2006, non-deductible as irrelevant, pursuant to art. 109 of T.U.I.R. (Italian Income Tax Code), to the company activities carried out. The company submitted its defensive arguments, following which, the Office did not follow up the assessment proposal formalised in the Financial Police's report on findings.

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