Edison Trading and Edipower - Brindisi Coal Storage Facility
On March 3, 2005, the Public Prosecutor of the Court of Brindisi ordered the seizure of the coal storage facility at Edipower's Brindisi North power plant. The technical consultant appointed by the Public Prosecutor of the Court of Brindisi to determine the existence, if any, of contamination of the subsoil and aquifer has not completed his work. In the meantime, Edipower filed and was granted a new petition asking that the seizure of the coal stored at the facility be lifted in exchange for implementing special operating procedures that allow the power plant to operate while the order of seizure remains in force.
Tedesco and Ferro Arbitration
On August 30, 2005, Messrs. Tedesco and Ferro served Montedison Srl with notice of a request for arbitration in connection with a preliminary sales contract valued at 2 million euros for an area located in Mazara del Vallo. In their request for arbitration, the plaintiffs ask that Montedison be found in default with regard to the sale of the property, free of any unauthorized encumbrances. The Board of Arbitrators is currently being impaneled. At this stage in the dispute, it is impossible to make a reliable assessment of the risk of a cash outlay or of the amount involved.
The developments that affected the status of the main tax disputes in 2005 are reviewed below:
Old Edison Spa - Direct Taxes for the 1994 to 1999 Fiscal Years
In 2000, following a general audit of Edison Spa for the period from 1994 to 1999, the Italian Revenue Police issued notices of assessment for the fiscal years from 1994 to 1998, which the Company is disputing before the appropriate Tax Commissions.
The assessments for 1994, 1995 and 1996 were canceled in full by the Provincial Tax Commission. However, in order to avoid litigation costs, these assessments were settled for reduced amounts in accordance with Article 16 of Law No. 289/2002, as extended, at a cost of about 3 million euros. The Tax Office rejected these reduced settlements for the 1995 and 1996 fiscal years and the Company has contested the validity of the rejection.
The assessment for 1998 has also been settled in the course of the proceedings and, in 2005, the Provincial Tax Commission upheld the main aspects of the appeal filed against the assessment for 1997.
Edison Spa Tax Audit for the 2002 Fiscal Year
Between November 2004 and February 2005, the Regional Revenue Office of Lombardy began a general tax audit of Edison Spa for the 2002 fiscal year.
The Audit Report assessed additional corporate income tax (IRPEG) of about 17 million euros in connection with certain expenses that were found not to apply to the year in question or not to be deductible. However, because of the unused tax loss carryforward, the assessment required no additional tax payments.
At the end of December, as the Company did not agree with and was not willing to pay the amount assessed by the Revenue Office, it was notified with IRPEG, IRAP and VAT assessments that, while not entailing significantly higher taxes or penalties, reflected the objections raised by the Regional Revenue Office, reducing by about 17 million euros the unused tax loss carryforward.
The Company believes that a significant portion of the costs that the Revenue Office disallowed should be tax deductible and will file an appeal in due course asking that these assessments be reversed.
Transactions Among Group Companies and with Related Parties
Transactions between Edison Spa and its subsidiaries and affiliated companies and its controlling company consist primarily of:
  • Commercial transactions involving the buying and selling of electric power and natural gas and the use of electrical networks.
  • Transactions involving the provision of services (technical, organizational and general) by headquarters staff.
  • Financial transactions involving lending and current account facilities established within the framework of the Group's centralized cash management system.
  • Transactions required to file a consolidated VAT return for the Group (so-called VAT Pool).
All of the transactions listed above are governed by contracts with conditions that are consistent with market terms, with the exception of those related to the VAT Pool, which are executed pursuant to law. In the area of commercial transactions, the Group's Parent Company, Edison Spa, sells natural gas and electric power to Edison Trading Spa and Edison Energia Spa, respectively, under special contracts that, taking into account the specific functions of the two buyer companies within the Group, provide the seller with adequate coverage of its fixed and variable costs. In addition, the rate earned on transactions involving intra-Group current accounts is the Deposit Rate of the European Central Bank, while the rate paid is the Marginal Refinance Rate of the European Central Bank.
The transactions with Edison's controlling company include the amounts rebilled by Italenergia Bis Spa for seconded employees and interest on balances in intra-Group current accounts until September 16, 2005.
On that date, Italenergia Bis Spa sold its controlling interest in Edison Spa to Transalpina di Energia Srl, a company owned in equal shares by WGRM Holding 4 Spa and Delmi Spa. WGRM Holding 4 is a wholly-owned subsidiary of EDF Sa and Delmi is a 51% subsidiary of AEM Spa.
In addition, Edison Spa issued sureties and other guarantees to credit institutions to secure loans and lines of credit provided to subsidiaries and affiliated companies, chief among them the facilities provided to Edipower, which are discussed in detail in the Notes to the financial statements.
Consolidated VAT Return - Edison Spa files a consolidated VAT return (so-called VAT Pool) that includes those companies of the Edison Group that meet the requirements of Article 73, Section 3, of Presidential Decree No. 633/72, as amended, and of the Ministerial Decree dated December 13, 1979. Under the consolidated return system, Group companies transfer to Edison Spa, either monthly or quarterly, VAT payable and receivable positions in order to allow Edison Spa to offset these positions and pay only the resulting debit balance, if any. The Group VAT return for December 2005 shows that the Group has a credit balance of 59.1 million euros
Intra-Group Assignment of Tax Credits - In 2005, in order to optimize the use of financial resources within the Group as allowed by Article 43 Ter of Presidential Decree No. 602/73, as amended, which permits intra-Group transfers of credits for corporate income taxes (IRES), Edison Spa transferred to several Group subsidiaries the surplus IRES credit generated in the 2004 fiscal year. The credit totaled 69.7 million euros, all collected by the subsidiaries during the year.
Consolidated Corporate Income Tax (IRES) Return - Edison Spa, as allowed by Article 117 and following of Presidential Decree No. 917/86 (Uniform Income Tax Code, abbreviated as TUIR in Italian), as amended and integrated by Legislative Decree No. 344/2003, opted to file a consolidated corporate income tax return together with its domestic subsidiaries (direct or indirect ownership greater than 50%) for the three-year period from 2005 to 2007.
Accordingly, once the Boards of Directors of all of the companies involved gave their approval and before officially informing the tax administration of the chosen filing status, Edison Spa and each subsidiary signed a bilateral agreement governing their mutual relationship for the purposes of the abovementioned filing status. The terms of these agreements are identical for all subsidiaries.