Sisal Annual Report 2011 - Permira

At the same time the above inspection activities of Sisal S.p.A. ended, the sameofficers of the Milan Tax Police Nucleus began a further tax inspection of the Companyfor purposes of direct income taxes for the tax year 2008. Later, on January24, 2011, the officers advised the company of the extension of the inspectionactivities to the tax years 2006, 2007 and 2009 only with regard to the substantivecontrol in progress on the finance expenses deriving from the operation for theacquisition of the controlling investments of the Sisal Group which was finalized inthe month of October 2006.On February 28, 2011, the inspectors illustrated the critical areas found during theinvestigation which are summarized in a document that was delivered for viewingto the Company. The document shows, to their way of the thinking, that the sumof the corporate and financial transactions put in place in 2006 at the behest ofthe private equity funds, Apax Partners and Permira, which indirectly control theGroup, are to be considered lacking in valid economic reasons and preordainedto generate exclusive and huge tax advantages only for the shareholder investors.Such circumstances would constitute conditions necessary and sufficient to forman assumption of the “abuse of a right” as defined by the doctrine of law of theCourt of Cassation and to recover after taxation the non-deductible interest expenses,unlawfully recorded by the Company.Subsequently, the Company, advised by its professional consultants, held numerousinformal discussions with the Guardia di Finanza (Financial Police) in referenceto the tax inspection and developed defensive arguments in order to reducethe significant amount of interest expenses both, and above all, to convince theinspectors that their positions were unfounded and brought evidence to sustainthe valid economic reasons for the acquisition and the absence of unlawful taxadvantage.During the course of these meetings, the Financial Police gradually displayed itsreadiness to substantially review its findings reducing the scope and relative fines;therefore, on November 16, 2011, the Financial Police issued a NoF in which thefindings were reviewed in their entirety in order to take into account the correctcalculation of the interest (which had been erroneously computed) consideringthat certain of the interest expenses had not and are not relative to the acquisitionprocess but to different and/or subsequent investments and a subordinatedhypothesis which, at the most, could sustain that the assumption of the debt couldbe the subject of some dispute to the extent that it refers to the quota reinvestedby the outgoing shareholders (the Molo family and the Clessidra Fund).On December 6, 2011, the final NoF was completed and delivered to the company.The NoF states that the operation for the acquisition of the controlling investmentsof the Sisal Group by leveraged buyout (LBO) was confirmed as substantially legitimateand the attention of the inspectors is limited to the measurement of thefairness of the total debt assumed by the Parent, for purposes of the acquisitionof the Sisal Group and, given the characteristics of the dispute founded on the“abuse of a right”, the question thus surrounds the case in point (and not the LBOoperations considered indiscriminately) and however only for the portion of thedebt contracted and the relative expenses ideally referring to the reinvestment bythe outgoing shareholders (equal to 9.6%).36 Sisal ANNUAL REPORT 2011