Annual Report 2013 | Suomeksi |

39 Legal actions and official proceedings

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39.1 Group companies
The Swedish Energy Authority (EI), which regulates and supervises the distribution network tariffs in Sweden, has issued a decision concerning the allowed income frame for the years 2012-2015. EI has based its decision on a model with a transition rule stating that it takes 18 years to reach the allowed level of income. The EI decision has been appealed to the County Administrative Court by more than 80 distribution companies, including Fortum Distribution AB. The basis for Fortum Distribution AB’s appeal is that the model is not compatible with the existing legislation and that EI has applied an incorrect method for the calculation of Weighted Average Cost of Capital (WACC). In December 2013, the court decided in favor of the industry on all major topics. However, the decision has been appealed by EI to the next level, the Administrative Court of Appeal. EI is expected to file its detailed appeal by the end of February 2014. Timetable for consideration of the matter by the Administrative Court of Appeal is not yet set.
In Finland, the Supreme Administrative Court gave its ruling on December 23, 2013 on the appeal by Fortum Sähkönsiirto Oy and Fortum Espoo Distribution Oy concerning the level of cost of equity and debt used in the regulatory model for 2009-2011. According to the appeal, the cost of equity and debt used in the model was too low for 2009-2011 due to the impact of the financial crisis. The Supreme Administrative court stated that according to the main rule the regulatory model confirmed in advance will be applied and amendments to the model should only be made based on significantly changed circumstances. The Court ruled that the change in circumstances was not significant enough and the appeal by Fortum Sähkönsiirto Oy and Fortum Espoo Distribution Oy was rejected.
Additionally, Fortum Sähkönsiirto Oy has a case open in the Supreme Administrative Court in Finland concerning consideration of the extraordinary storm repair costs in 2011 in the regulation. Fortum Sähkönsiirto Oy has appealed for EUR 19 million to be treated as pass through items. Time schedule for the court ruling is still open and Fortum Sähkönsiirto Oy's regulatory decision for 2008-2011 will be further delayed.
Fortum received income tax assessments in Sweden for the years 2009, 2010 and 2011 in December 2011, December 2012 and December 2013, respectively. According to the tax authorities, Fortum would have to pay additional income taxes for the years 2009, 2010 and 2011 for the reallocation of loans between the Swedish subsidiaries in 2004-2005, as well as additional income taxes for the years 2010 and 2011 for financing of the acquisition of TGC 10 (current OAO Fortum) in 2008. The claims are based on a change in tax regulation as of 2009. Fortum considers the claims unjustifiable and has appealed the decisions. Based on legal analysis, no provision has been recognised in the financial statements.
If the decisions by the tax authority remain final despite the appeal processes, the impact on net profit would be approximately SEK 425 million (EUR 48 million) for the year 2009, approximately SEK 444 million (EUR 50 million) for the year 2010 and approximately SEK 532 million (EUR 60 million) for the year 2011.
The Administrative Court has now investigated Fortum's appeal for the year 2009 and, on 9 October 2013, ruled against the tax authority. The Administrative Court approved the appeal on formal legal grounds. Both the tax authority and Fortum have appealed the court's decision. Fortum is dissatisfied with the amount of legal costs that the Court ordered the tax authority to pay and appealed this part of the decision.
Fortum has received income tax assessments in Belgium for the years 2008 and 2009. Tax authorities disagree with the tax treatment of Fortum EIF NV. Fortum finds the tax authorities interpretation not to be based on the local regulation. No provision has been accounted for in the financial statements. If the decision by the tax authorities remains final despite the appeal process, the impact on the net profit would be approximately EUR 36 million for the year 2008 and approximately EUR 27 million for the year 2009. The tax has already been paid. If the appeal is approved, Fortum will receive a 7% interest on the amount.
Fortum received an income tax assessment in Finland for 2007 in December 2013. Tax authorities claim in the transfer pricing audit, that detailed business decisions are done by Fortum Oyj and therefore re-characterize the equity Fortum has injected to its Belgium subsidiary Fortum Project Finance NV not to be equity, but funds to be available for the subsidiary. Tax authorities' view is that the interest income that Fortum Project Finance NV received from its loans should be taxed in Finland, not Belgium. The Belgium tax authorities have an opposite view on the issue. Fortum considers the claims unjustifiable both for legal grounds and interpretation. Fortum has appealed the decision. The appeal is based on national legislation in Finland and the EU arbitration between Finland and Belgium. Based on legal analysis, no provision has been recognized in the financial statements. If the decisions by the tax authority remain final despite the appeals processes, the impact on net profit would be approximately EUR 136 million for the year 2007.
Fortum has on-going tax audits in Finland, Belgium, Russia and some other countries.
See Note 14 Income tax expense and
29 Deffered income taxes
In addition to the litigations described above, some Group companies are involved in other routine tax and other disputes incidental to their normal conduct of business. Based on the information currently available, management does not consider the liabilities arising out of such litigations likely to be material to the Group's financial position.
39.2 Associated companies
In Finland Fortum is participating in the country's fifth nuclear power plant unit, Olkiluoto 3 (OL3), through the shareholding in Teollisuuden Voima Oyj (TVO) with an approximately 25% share representing some 400 MW in capacity. The civil construction works of the Olkiluoto 3 plant unit have been mainly completed, and the reactor main components are installed. Installation of the other components and engineering of the plant automation system continued. Based on the progress reports of AREVA-Siemens Consortium, TVO estimates that the start of the regular electricity production of the plant unit may be postponed until year 2016. The supplier is responsible for the time schedule.
In December 2008 the OL3 supplier, AREVA-Siemens, initiated the International Chamber of Commerce (ICC) arbitration proceedings and submitted a claim concerning the delay and the ensuing costs incurred at the Olkiluoto 3 project. In 2012, TVO submitted a counter-claim and defense in the matter. The quantification estimate of TVO's costs and losses was approximately EUR 1.8 billion, which included TVO's actual claim and estimated part. The arbitration proceedings may continue for several years and TVO's claimed amounts will be updated. The supplier updated its original claim in October 2013. The updated claim including quantification until the end of June 2011 and together with the original claim, is in total approximately EUR 2.7 billion. TVO has considered and found the claim by the supplier to be without merit, and is in the process of scrutinizing the new material and responding to it.
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