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13 Income taxes

 

This item is made up as follows:

 31-Dec-200731-Dec-2006Change
Current, deferred and prepaid taxes32,63779,009-46,372
Total32,63779,009-46,372

In this period, the overall impact of taxes on the before tax results is equal to 22.9%, compared with 44% in 2006.

The considerable improvement of the tax rate is due to the positive effect derived from the application of the substitute taxation, and from the recording in the income statement of the ires and irap rate differentials (from 37.25% to 31.4%) calculated on credits for deferred tax assets and on debits for deferred tax liabilities recorded in the financial statements.

These effects, non recurring, totalled in aggregate Euro 32,930 thousand.

Specifically, as regards substitute taxation, it should be noted that certain companies in the group availed themselves of the election provided for under art. 1, subparagraph 48 of Law no. 244 dated 24 December 2007, for the application of a substitute Ires and Irap tax on deducted surpluses, under art. 109, subparagraph 4, letter b), of the Consolidation Act on Income Taxes with regard to tangible and intangible fixed assets, in compliance with the implementation provisions of the ministerial decree dated 3 March 2008. This led to a net positive effect on the results from the financial year equal to Euro 24,649 thousand, due to the amount of the substitute taxation, equal to Euro 24,488 thousand and to the release of deferred taxes on disalignments as at 31 December 2007 for Euro 49,137 thousand.

As regards the "rate differential", the overall effect is equal to Euro 8,281 thousand. It should be noted that, in accordance with the legislative decree no. 10 dated 15 February 2007, converted into Law no. 46 dated 6 April, which governs the procedures for the refund of State aids declared as unlawful under decision no. 2003/193 dated 5 June 2002 of the EU commission, on 6 April 2007 the notices-injunctions issued by the Revenue office competent for the relevant jurisdiction were notified to Hera Spa, requiring from the latter the payment of an aggregate amount of Euro 22,312,964 for the four tax periods involved in the recovery of the direct taxes. On 31 May 2007, the Company filed with the provincial tax commission (commissione tributaria provinciale) of Bologna the appeals against the aforementioned notices-injunctions, at the same time requesting the suspension of said order for payment. On 6 July 2007 the provincial tax commission of Bologna issued the orders with which it granted the suspension requests filed by the company, setting the hearing for the discussion of the matter on 13 December 2007; as of today, the communication with the operative part of the judgement has not been received yet.

It should be further pointed out that, in accordance with the provisions of the agreements between the shareholders entered at the moment of the merger which led to incorporation of Hera Spa and disclosed in the listing Prospectus, the local authorities pledged to indemnify Hera Spa of any costs, losses or damages incurred by the latter with reference to binding regulatory measures which may annul the tax concessions from which the companies and the other participants to the merger have already benefited. Hence HERA SpA did not make any provisions in this respect. In compliance with the foregoing, the municipal shareholders pledged appropriate collateral in favour of the Company through the payment of funds as advance for the amounts which might become due by Hera in the unlikely event that the appeals for the cancellation of the notices-injunctions would not be successful.

As regards the former Meta, it should be noted that the Revenue office of Modena notified to Hera Spa, on 11 May 2007, under the provisions of, and in compliance with, the legislative decree dated 15 February 2007, the notices-injunctions for the recovery of the State aids related to the 1998 and 1999 tax periods The company filed, on 6 June 2007, applications for the amendment ("istanze di autotutela") of such notices-injunctions. The Revenue Office of Modena, on 11 June 2007, partially granted the requests of the company for an amendment of the notices-injunctions, ordering the company, in settlement of the entire issue, to pay an irrelevant amount related, however, to the disclaimer of some withholding taxes paid."

The same decree cited above (legislative decree no. 10 of 15 February 2007, converted into law no. 46 on 6 April 2007) envisaged recovery of claimed government grants in connection with the mortgage loans taken out with the Bank for Deposits and Loans by several companies and several consortiums that then converged into Hera S.p.a. Following the special communication received from the Minister of Economy and Finances, Hera S.p.A. was particularly asked to return the difference between taxes applied and taxes of reference indicated by the European Commission, in addition to adapting its amortisation plans for the mortgage loans in question. Eighteen tax assessment notices for recovering a total of Euro 1,469,641.86 plus interest, costs and penalties were sent in response to the request on 6 June 2007 and 3 July 2007. On 16 October 2007 and 20 December 2007 another 11 tax assessment notices regarding recovery of benefits for the failure to adapt the amortisation instalments until the loans come due for a total of Euro 237,705.61 plus interest and costs were sent. An appeal opposing the first 18 tax assessment notices was presented to the tax commissions, at the first obtaining suspended payment. After the provision was revoked on 14 January 2008, these tax assessment notices were paid. On 10 January 2008, the 5 tax assessment notices sent on 16 October 2007 were also paid, while another 6 tax assessment notices will fall due on 24 April 2008. All together, the amount paid totals Euro 2,759,921.71, which includes penalties, interest and costs. As of today, repeals in first instance are pending against all the tax assessment notices. Considering the opinion of the legal advisers as well, it was decided to not set aside any allocation as the possibilities for a positive outcome of the requests made exist.

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