Sisal Annual Report 2011 - Permira

Principal risks and uncertainties to which the Group is exposedThe Group operates in a complex regulatory environment which is subject to continuousevolution; this complexity is emphasised by the nature of the gaming industrywhich in recent years has experienced rates of growth not easily found inother sectors.The strong presence of the State’s regulatory activity and of the bodies responsiblefor the control and management of this market often subordinates the developmentof the entrepreneurial activities of the Group to the obtaining of authorisationsor to participation in public tenders which are made particularly competitivenot merely by the presence of other historic operators in the Italian market but alsoby the ever fiercer pressure from foreign operators to expand and consolidate theirpresence in our national market.The result is frequently a high level of litigation surrounding the outcome of tenderswhich is expressed in the numerous appeals and contestations submitted, insome cases opportunistically in order to create disturbance.The impact of these factors on the financial statements of companies is amplycommented both in the description of the litigation in progress and in the analysisof the effects which regulatory developments have on revenue recognition andhow the modifications to the contractual terms of the concessions rights awardedor to be awarded will affect the accounting treatment of the related captions.Group management monitors constantly the evolution of these factors in the lightof the companies’ many years of experience in the industry, undertaking wherenecessary legal action to protect the interests of the companies.The exposure of the Group in particular to pricing, credit and liquidity risks and tothe risk of fluctuations in cash flows and the policies developed to deal with theserisks are amply described in the section of the explanatory notes dedicated to financialinstruments to which reference is made for further details.Other disclosuresAs of the reporting date, certain Group companies are involved in court cases and/or tax investigations.In particular, during the course of the years 2008 and 2009, two tax investigationsof Sisal S.p.A. were conducted by the Lombardy Regional Office of the RevenuesAgency, respectively, a general type of inquiry on the year 2005 and a partial typeof inquiry on the year 2006. The latter, in particular, was aimed at examining incometaxes, VAT and IRAP taxes on certain transactions carried out in that periodspecifically in reference to the merger between the company and the mergedcompany Sisal S.p.A. (the company resulting from the merger took the name ofSisal S.p.A.) and the tax treatment of certain tax expenses related thereto. Thisinvestigation ended on October 22, 2009, with the preparation of a Note of Findings(“NoF”) mainly containing objections to the pertinence of some expensesconnected with the loan secured for the foregoing merger operation which inturn can be traced to the extraordinary operation for the acquisition of control ofthe Sisal Group during 2005. In particular, in that NoF, the investigators disputedthe deductibility for IRES and IRAP tax purposes of costs for about EUR 8.2 millionincurred in 2006 and denied the deductibility of VAT for about EUR 0.5 million in2005 and about EUR 0.1 million in 2006.34 Sisal ANNUAL REPORT 2011