Commitments and contingencies
28. Commitments and contingencies
Sureties were provided to guarantee loans made by credit institutions to associates and joint ventures of Pirelli & C. Real Estate for a total of Euros 15,763 thousand consisting of the shares of the associates and joint ventures pledged for an amount of Euros 121,386 thousand.
Various sureties were provided by banking institutions and insurance companies to third parties and in the interests of Pirelli & C. Real Estate S.p.A. mainly to fulfill contractual obligations of the Pirelli & C. Real Estate Group for a total of Euros 220,113 thousand.
Commitments for purchases of properties
Commitments for the purchase of properties refer to Pirelli & C. Real Estate S.p.A. to purchase certain buildings if they remain unsold, owned by Imser 60 S.r.l., for a maximum amount of Euros 320,000 thousand. The purchase price of these buildings is established by contract at about 20 percent of their market value. This option may be exercised by the counterpart up to May 31, 2022.
Commitments for purchases of property, plant and equipment
Commitments for the purchase of property, plant and equipment refer to the Tyre Sector and are equal to Euros 85.8 million (Euros 91.5 million at December 31, 2006), mainly in reference to the companies in Brazil, Romania, China and Germany.
Commitments for purchases of investments / shares of funds
- Pirelli & C. Real Estate Società di Gestione del Risparmio S.p.A. has a commitment to subscribe to shares of the closed-end ethical real estate investment fund for qualified investors “Fondo Abitare Sociale 1” for a total amount of Euros 2,422 thousand.
- Pirelli Finance (Luxembourg) S.A. undertook a commitment to subscribe to shares of the company Equinox Two S.c.a., a private equity company specialized in investments in listed and unlisted companies with a high potential for growth, for an equivalent maximum amount of Euros 9,700 thousand.
Other guarantees refer to:
- guarantees provided as part of the transaction for the sale of junior notes relating to a non-performing loan portfolio of ex-Banco di Sicilia on behalf of a third-party joint venture. These guarantees, counterguaranteed by the partner in the venture, involves a net exposure for Pirelli & C. Real Estate S.p.A. of Euros 26,009 thousand;
- guarantees provided to third parties for the fulfillment of various commitments undertaken by the companies of the group for a total of Euros 9,214 thousand;
- guarantees provided as part of securitization transactions conducted by vehicle companies for the correct and precise fulfillment of payment obligations for a total of Euros 55,756 thousand;
- guarantees provided as part of property purchase transactions effected by joint ventures for the fulfillment of their payment obligations for a total of Euros 1,252 thousand;
Finally, Pirelli & C. Real Estate S.p.A. has a commitment to proportionally cover any negative difference between the flows from rental income and interest expenses payable by Tiglio I S.r.l. to the lending banking institutions on credit lines expiring in 2009; at this time, based on available information, revenues flows are higher than estimated interest expenses.
Moreover, in the process for the acquisition of the DGAG Group, Pirelli & C. Real Estate S.p.A. provided guarantees mainly in respect of bank loans made to the vehicle company. Pirelli & C. Real Estate S.p.A.’s exposure for such guarantees is net of the counterguarantees provided by the partner in the venture, quantified at Euros 73,683 thousand.
Guarantees provided at the time of the sale of Olimpia
At the time of the sale of the investment in Olimpia S.p.A., the sellers (Pirelli and Sintonia) remained responsible for tax risks for the periods up to the date of sale.
In 2006, the Tax Revenues Agency had notified Olimpia S.p.A. of an assessment for IRAP taxes regarding 2001.
In summary, Olimpia S.p.A. had been assessed for IRAP taxes for 2001 on alleged financial income on the Bell bonds repayable in Olivetti shares for an amount of Euros 26.5 million, in addition to penalties of the same amount.
The Company opposed the assessment and filed suit on administrative grounds and against the evident unfounded grounds of the tax assessment.
In September 2007, the Tax Commission of the First Instance, on motivated grounds, ruled in favor of the appeal filed by the Company and completely canceled the above-mentioned assessment.
The Tax Revenues Agency still has time to file an appeal.
At the end of the year, another assessment was received for 2002: the relative IRPEG tax amounts to Euros 29.3 million in addition to penalties for the same amount.
This assessment was also considered to be totally devoid of foundation and the Company filed an appeal with Tax Commission of the First Instance.
Considering the average times for discussing the case before that Commission, it can reasonably be expected that the ruling of the First Instance will occur during 2008.
There is also reason to believe that the argument adopted by the Company in this second dispute, assisted by qualified advisors, will also be accepted, without resulting in any additional payment of taxes.