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14 Other non-operating costs

 

This item is broken down as follows:

 1st half 20121st half 2011Changes
Current taxes (Ires, Irap and substitute tax)75,65468,9416,713
Deferred tax (950)1,935 (2,885)
Prepaid tax(7,871)(8,117)246
Total66,83362,7594,074

Taxes for the period amount to EUR 66,833 thousand, compared to EUR 62,759 thousand of the first half of 2011.
The tax rate of the first half of 2012 is equal to 44.5%, compared to 43% in the first half of 2011.

Current taxes are broken down as follows:

Current taxes 1st half 20121st half 2011Changes
Ires57,95552,1885,767
Irap17,53816,592946
Substitute tax "scope split-up"1611610
 75,65468,9416,713

In calculating the taxes for the period, the effects deriving from the IAS tax reform introduced by Italian Law no. 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, paragraph 7-quater, of Legislative Decree no. 38/2005. 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 Decree Law 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 EUR 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 receivable carried over from previous years amounting to EUR 3,738 thousand; therefore, in June 2008, a total of EUR 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 EUR 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 receivable for tax periods before 2007; therefore, on 27 October 2010, an additional EUR 7,455 thousand was paid in this respect. The appeals in Cassation were filed in on 29 April 2010. The hearing was held on 24 January 2012 and the related rulings were favourable.

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 above-mentioned recovery no cost was accounted for. It should be noted that as at 30 June 2012, outstanding receivables for collection from public entities, related to all payments made by Hera Spa for the position related to the former Seabo Spa, amounted to EUR 361 thousand as at the date of these financial statements.

Decree Law no. 185/2008 and Decree Law no. 135/2009
Art. 24 of Decree Law 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 EUR 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 Decree Law no. 185 of 29 November 2008, was then amended by art. 19 of the Decree Law no. 135 of 25 September 2009, which added paragraph 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 EUR 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 Decree Law 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 EUR 759 thousand.

The total amounts required, by effect of the proceeding provided for by art. 19 of Decree Law no. 135/2009, amounted therefore to EUR 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 lawsuits were discussed on the occasion of the hearing held on 15 February 2012 and four rulings were handed down by the Provincial Tax Commission of Bologna, Section no. 17, and filed on 23 February 2012. These rulings partially upheld the Company's appeal with reference to the recoveries concerning landfill post-closure provisions and have currently become final. To this purpose, it should be specified that, by effect of the agreements between the above-mentioned shareholders, the amounts collected to this end shall be returned. 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 reconciliation between the parties. Discussion of the disputes could be set at the beginning of 2013.

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 Srl 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 EUR 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, paragraph 2, of Legislative Decree no. 218 of 1997, which concluded positively for the companies, solely involving the payment of penalties reduced to 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 EUR 40 thousand; on 29 February 2012, 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 2005 tax year 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 Spa in its capacity of Parent Company of the Hera Group, to the Area Operating Company subsidiary of Forlė-Cesena, Hera Forlė-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 Forlė-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 Spa 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, paragraph 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 made for VAT purposes. Pending the tax proceedings, the company was notified of a tax payment request on 4 January 2012, for the provisional recording of EUR 653 thousand, which the company paid on 29 February 2012. The hearing at the Province Tax Commission of Bologna was fixed on 19 September 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 also 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 Consolidation Act on Income Taxes, 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, concluded in March 2012, 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 EUR 2,581 thousand, regarding the functioning of the AATOs, would be considered, on the basis of the joint provisions of article 148, paragraph 4, and article 154, paragraph 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.
Another report on findings was drawn up on 26 March 2012 for the tax years from 2006 to 2011, with special reference to VAT for rentals related to the concession for the use of grids, networks and plants and the reimbursements to local entities, as well as lease rents of business branches or related to agreements on assets connected with the management of the integrated water supply service and the municipal waste management charged to Hera Spa by asset companies. According to the contents of the report on findings, the aforementioned rentals relating to the use of infrastructures are to be considered as relevant for VAT calculation purposes, with the application of the pro-tempore ordinary rate (20%) currently in force. In the opinion of auditors, this would result in the eligibility of Hera Spa to administrative penalties with reference to invoices without VAT, or reporting a reduced VAT rate (10%). The Company submitted its defensive arguments on 31 May 2012 and the Office has not sent an assessment notice yet.

Information on the tax assessments communicated in the 2012 tax period
On 7 March 2012, a tax assessment commenced at the company Herambiente Spa regarding income taxes, VAT and IRAP, conducted by the Inland Tax Office - Emilia Romagna Regional Management - Large Taxpayers Office.
The assessment concerned the 2009 tax year and especially the eligibility, then objected, for the IRAP tax facility as per Art. 11, paragraph 1 letter a), no. 2), 3) and 4) of the Legislative Decree no. 446/97, the so-called tax wedge, as well as, for IRAP tax purposes, the application of the provisions set out by Art. 36, paragraph 7, of the Decree Law no. 223/2006 regarding the amortisation of land. Moreover, for VAT purposes, objection was made on the incorrect VAT deduction at 20% and not 10% rate charged to some suppliers as regards waste disposal services. On 22 May 2012, the Company was served with another Report on findings, in which the defensive arguments were entirely objected.

On 12 June 2012, a tax assessment commenced at the company Hera Trading Srl, regarding income taxes, VAT and IRAP and conducted by the Inland Tax Office - Emilia Romagna Regional Management - Large Taxpayers Office.
The assessment concerned the 2009 tax year and the tax years before and after 2009 for any possible impacts resulting to transactions connected with the year in question.
In particular, the increased IRAP tax rate application was assessed, then objected, related to the production and distribution of electricity, gas and heat, as per Art. 1 of the Regional Law of Emilia Romagna no. 19/2006. For IRES and IRAP purposes, objection was made on the Company's non-reporting of a contingent asset related to the lack of alleged payables for invoices to be received, recorded in previous years, pursuant to Art. 88, par. 1, of the Consolidation Act on Income Taxes. Special attention was drawn by auditors to VAT applied by the Company to derivative contracts on commodities and related indexes, with special reference to the qualification of the same transactions as "exempt" from VAT, pursuant to Art. 10, paragraph 1, item 4) of the Presidential Decree 633/72 and following application of the pro-rata deduction of the tax pursuant to Art. 19, paragraph 5, of the Presidential Decree 633/72. Objection was therefore made to the company regarding the identification of the aforementioned transactions on derivatives as excluded from the VAT pro-rata deduction as these transactions are undoubtedly "ancillary" to taxable transactions related to wholesale activities of electricity and natural gas. The assessment also referred to expenses and other negative components resulting from transactions with suppliers resident in Countries in the so-called "black list" and with foreign investees. No irregularities were reported. On 12 July 2012, the Report on findings was delivered to the company. The Group, after hearing its legal advisors, deems that it operated correctly, taking account of the type of transactions carried out and that this dispute would involve no significant liabilities.

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