2012 Annual Report - ZTE

ZTE CORPORATIONMaterial Matterswhereby CLEARTALK demanded, in respect of the same case, a USD300 million compensation togetherwith the reimbursement of legal fees, litigation costs and other compensation deemed appropriate by thearbitration court.On 12 October 2012, the Company and ZTE USA filed a defense and a counter-claim with ICDR, allegingthat CLEARTALK had committed breach of contract, fraud and abuse of litigation rights and had seriouslycompromised the interests of the Company. Under the mediation of the arbitrator, the two parties agreed toreschedule the date of arbitration to 1 April 2013, while the location of arbitration would remain Jacksonville,Florida. As the arbitration procedures of the United States do not provide for any limit on the amountcompensation demanded by an applicant, the final amount of compensation demanded in this case will notbe confirmed until the arbitration tribunal opens.Based on the legal opinion furnished by the legal counsel engaged by the Company and the progress ofthe case, the Directors of the Company are of the opinion that the aforesaid case will not have any materialadverse impact on the financial conditions and operating results of the Group for the current period.(10) On 3 January 2012, ZTE DO BRAZIL LTDA (“ZTE Brazil”), a wholly-owned subsidiary of the Company,received a notice of administrative penalty issued by the tax bureau of Sao Paulo State of Brazil. It wasalleged in the notice that ZTE Brazil had not paid the ICMS tax (a tax payable in respect of the transit ofgoods and related services between different states) to the tax bureau of Sao Paulo State in respect ofgoods imported at Espirito Santo State and transported to Sao Paulo State during the period from October2006 to December 2008. The tax amount outstanding was approximately BRL74.70 million (equivalent toapproximately RMB224 million).On 20 January 2012, ZTE Brazil submitted an administrative defense to the level 1 administrative court underthe tax bureau of Sao Paulo State, stating that ZTE Brazil had paid the ICMS tax at Espirito Santo State.Pursuant to an agreement between Sao Paulo State and Espirito Santo State in June 2009 and Order No.56045/2010 of Sao Paulo State, which provided that the agreement should apply to ICMS tax incurred priorto May 2009, ZTE Brazil was not required to pay ICMS to the tax bureau of Sao Paulo State. On 13 April2012, ZTE Brazil received the judgment of the primary trial of the level 1 administrative court under the taxbureau of Sao Paulo State, which endorsed the administrative penalty imposed by the tax bureau of SaoPaulo State. On 11 June 2012, ZTE Brazil filed an appeal with the level 2 administrative court under thetax bureau of Sao Paulo State. On 29 November 2012, the tax bureau of Sao Paulo State issued a noticethat ZTE Brazil had paid the ICMS or made a remedial payment thereof and recommended suspension ofexecution of the notice of administrative penalty. The case is pending judgement by the level 2 administrativecourt under the tax bureau of Sao Paulo State.Based on the legal opinion furnished by legal counsels engaged by the Company and the progress of thecase, the Directors of the Company are of the opinion that the aforesaid case will not have any materialadverse impact on the financial conditions of the Group for the current period.64