The Group has an estimated Euro 27.9 million in contingent liabilities associated with ongoing legal disputes, against which it has made no provision, believing the likelihood of any outlay to be remote.
Following the bankruptcy of Lehman Brothers Commercial Corporation (LBCC), the Group concentrated all its debtor and creditor positions with LBCC in a single subsidiary, Benetton International S.A. This process has produced a net creditor balance of around Euro 0.9 million, which was written down in full in 2008. In September, Benetton International S.A. tendered proof of its creditor position as part of LBCC's liabilities. However, as part of the Chapter 11 proceedings, it is possible that the above offsetting could be contested by the official receivers, meaning that a liability of around Euro 2 million to LBCC might re-emerge along with a receivable for an equal amount. The Group believes such an event is unlikely and so has not made any provision against this liability in its financial statements.
The subsidiary Bencom S.r.l. had a partial tax inspection at the end of 2007 by the Venice Tax Police for tax periods 2004-2005-2006 in relation to IRES (Italian corporate income tax), IRAP (Italian regional business tax) and VAT. The related report, received on October 18, 2007, raised issues regarding the alleged evasive nature of permanent establishments set up abroad upon the introduction of the "Tremonti" reform and the partial deductibility of sponsorship paid to amateur sports associations.
On May 25, 2009 the Venice Tax Police sent Bencom S.r.l. another notice for tax periods 2004-2005-2006-2007 in relation to VAT, IRES and IRAP. The related report disputes the tax deductibility of certain costs amongst which: i) commissions paid to agents resident in tax havens (from 2004 to 2007); ii) sponsorship costs incurred in respect of amateur sports associations; iii) costs associated with tax avoidance involved in the setting up of permanent establishments abroad (2007).
The reports dated October 18, 2007 and May 25, 2009 quantify the extra tax payable by Bencom S.r.l. as Euro 89.3 million.
At the end of December 2009 the Revenue Office sent the company a notice of assessment for IRES and IRAP relating to tax period 2004, which quantified the extra tax payable at around Euro 20.5 million, plus penalties and interest.
It is reported that the Revenue Office has not pursued the matter relating to sponsorship costs incurred in respect of amateur sports associations.
Lastly, the subsidiary Benind S.p.A. also had a partial tax inspection in 2008 by the Treviso Revenue Office for tax period 2005 in relation to IRES, IRAP and VAT. The related report, received on October 15, 2008, raises issues regarding the non-business related nature of certain costs, resulting in an estimated Euro 3.4 million in additional tax.
In addition, the subsidiary Benind S.p.A. has been in dispute since April 2007 with the Italian customs authorities, which could give rise to a liability of approximately Euro 7.5 million, plus penalties.
Up until now the company has obtained four rulings in its favor from the Treviso Provincial Tax Commission, involving the total cancellation of the extra customs duties and penalties under dispute.
A second-level sentence is currently pending following appeal by the Treviso Customs Agency and the subsequent responses presented by the Company.
The Boards of Directors of Bencom S.r.l. and Benind S.p.A. consider the matters raised to be unsubstantiated and so have decided not to make any provision against tax contingencies, also on the strength of authoritative external professional advice.