Update on litigation for alleged abuse in the procedure for acquiring ATA
On December 20, 2013, the Anti-trust Authority initiated proceedings in response to the complaint by Cedicor Sociedad Anonima ("CEDICOR"), charging SEA with abusing its dominant position in breach of article 102 of the Treaty on the Functioning of the European Union ("TFEU") in the course of tendering for the acquisition of ATA (Ali Trasporti Aerei SpA - now SEA Prime SpA).
On April 2, 2015, the Authority concluded the proceedings by upholding the complaint against SEA and imposed a fine of Euro 3,365,000. Although it paid the fine, SEA filed an appeal against the ruling with the Regional Administrative Court ("TAR"). The above-stated appeal cites the legitimacy and correctness of the Provision.
By means of judgment no. 1188 of January 23, 2017, the Regional Administrative Court of Lazio upheld the appeal of SEA in part, striking down the part of the ruling that imposes the fine and directing the Authority to reassess its amount based on the new parameters indicated by the administrative court. Through an order dated April 27, 2017, the Authority reassessed the amount of the fine and set its new total amount at Euro 936,320.
On July 8, 2015, while the proceedings before the Regional Administrative Court of Lazio were still pending, SEA paid the fine in full, in addition to Euro 2,535.27 in default interest. Then on May 9, 2017, it asked the Authority to refund the amount of Euro 2,428,680 that had been unduly paid, in addition to reimbursing the portion of interest that had been charged based on a capital whose amount was restated by the Regional Administrative Court of Lazio and is now known to have been overpaid. Moreover, SEA requested payment of the legal interest accrued on the amount paid. On May 30, 2017, the Authority confirmed the reassessment of the fine in the amount of Euro 936,320. It also reported that it had informed the Ministry of the Economy and Finance that it had no objection to refunding the total sum of Euro 2,430,343 (of which Euro 2,428,680 in fines and Euro 1,663 for default interest). We are now awaiting receipt of the larger amounts paid.
Action brought by ATA Handling
In May 2015, ATA Handling in liquidation and subject to administration notified SEA SpA and the Municipality of Milan of a citation, by which ATA Handling, referring to the decision of the European Commission of December 19, 2012 concerning alleged State Aid in favour of SEA Handling, requested compensation for damages suffered as a result of the above-stated aid, issued in the form of share capital increases, alleging that such gravely affected ATA Handling’s operations: it was alleged in fact that SEA Handling through the systematic coverage of losses applied significantly lower tariffs than those which would have been applied in the absence of such aid. It was put forward that ATA Handling was forced also to apply lower tariffs than would have been applied in an undistorted market and on the other that ATA Handling was prevented from acquiring a greater market share. This situation, it was alleged, restricted ATA Handling from operating under balanced conditions and led to its liquidation. In September 2013 and, for a second time in July 2014, ATA Handling requested compensation for damages due to alleged State Aid, although both these requests did not receive a response and therefore ATA Handling notified the citation, quantifying damages, through a differential analysis of two situations (SEA Handling with share capital increases and SEA Handling without share capital increases), as Euro 93.1 million. SEA has already produced the documentary evidence disproving the charge of predatory pricing. ATA Handling then challenged jurisdiction before the Supreme Court of Appeal, asking the latter to rule on whether jurisdiction for damages pertained to the regular courts or to the administrative courts. The Supreme Court of Appeal ruled that the regular courts had jurisdiction, and the case was then referred to the regular courts for a decision on the merits.
Once jurisdiction of the regular courts had been ruled, ATA Handling moved for resumption of trial before the court, which adjourned the case until April 2018 as it still had no decision from the Court of the European Union.
In line with the previously adopted closings in terms of the European Commission decision of December 19, 2012, also for the dispute taken by ATA Handling - directly based on the above-stated decision and to which it explicitly refers - no risks and charges provisions were accrued in the SEA financial statements.
Action brought by Emilio Noseda before the Court of Buenos Aires
In 2005, an action was filed against SEA by Mr. Emilio Noseda before the Court of Buenos Aires to compel fulfilment of alleged commitments made in 1997 by SEA to Delta Group S.A., a Uruguayan company of which Mr. Noseda had been legal representative. Delta Group S.A. supported SEA’s tender for the Argentine airports concession.
Mr. Noseda, as assignee of Delta Group’s rights, sought a judgment ordering SEA to:
- transfer 2% of the shares of AA2000 against payment of their current market value;
- compensate Delta Group for the loss of chance it sustained because it was unable to resell the shares during the time when their value was greater than the price then paid (USD 2 million). No damage amount was specified.
- compensate Delta Group for the expected profit that failed to materialise because Delta Group was not awarded concessions at three Argentine airports. No damage amount was specified.
Once the evidentiary stage of the trial had ended, we awaited the announcement of the judgment. A new judge was appointed. Noseda requested legal aid, which was granted. SEA then proposed a settlement in the amount of USD 500,000 which was rejected. Noseda demanded the amount of USD 3.5 million plus court costs.
On December 30, 2016 Commercial Court No. 2 of Buenos Aires entered judgment, which was served on February 2, 2017, dismissing Mr. Noseda’s action to compel fulfilment of the aforesaid commitments made in 1997, and ordering him to pay court costs. Mr. Noseda appealed against the judgment. Currently the case is stayed at the Commercial Court pending appearance in court of the heirs of a third party whom the court summoned as the assignees of some of Delta Group’s rights.
In its financial statements, SEA posted an adequate amount to cover the risk in a provision for contingent liabilities.
Judgment 3553/2015 entered by the Milan Court of Appeal
The decision by the Milan Court of Appeal published in September 2015 relates to the ongoing dispute with customs for non-payment of fees for the use of space made available to SEA. This decision confirms the grounds cited in the judgment at trial, which ordered customs to pay SEA the sum of Euro 5,591,000. In December 2016 customs appealed the aforementioned judgment to the Supreme Court of Appeal, disputing the amount set by the appeal court. Since not all levels of judgment have been completed, no revenue has been posted in the present financial statements.
Civil litigation between SEA and ENAV
- These proceedings concern SEA’s claim to assets mistakenly assigned to ENAV by means of provisional delivery memoranda in the course of 1983 and 1984. By overturning the judgment entered at trial, the Court of Appeal granted SEA’s motion and voided the transfer of the aforementioned assets to ENAV. Judgment 3406/2015 acknowledges SEA’s right to use the state-owned premises under concession at the airports of Milan Linate and Milan Malpensa, and therefore temporary ownership of the goods produced/benefits obtained. In February 2016, both the Prosecutor’s Office on behalf of the Ministries and ENAV appealed to the Supreme Court of Appeal against judgment on appeal 3406/2015, which granted SEA’s claims in full. In April 2016 SEA moved for service of the counter-appeal with contingent cross-claims against both the Ministries and ENAV. Currently the dispute is pending before the Supreme Court of Appeal, awaiting scheduling of the hearing on the merits.
- In addition a lawsuit is pending before the Court of Milan on SEA’s claim against ENAV for the assets covered by Ministry Decree 14/11/2000; the hearing for final argument had been scheduled for December 5, 2017 but was postponed to May 29, 2018.
Ruling on fees for fire-fighting services
The law of 27/12/2006 no. 296 (2007 Finance Act) article 1, paragraph 1328, established a fire-fighting fund financed by airport companies in proportion to the traffic generated by each, in the amount of Euro 30 million a year, in order to reduce the State’s expenses for the fire-fighting service provided at airports by the National Fire-Fighting Service. However, as a result of the entry into force of the provisions of paragraph 3 bis of article 4 of Legislative Decree 185 of 29.11.2008, introduced with the Conversion Act of 28/1/2009 no. 2, the resources of the fund were also allocated to purposes completely unrelated to those initially envisaged by the 2007 Budget.
SEA objected, alleging unlawfulness, and challenged the law both before the Regional Administrative Court and before the regular Court of Rome.
Over the years considerable case law has accumulated, some of which has become final. All judgments have found that “the tax was instituted by the law as a tax earmarked for a specific purpose". Until now the courts have also observed that ever since law no. 2/2009 entered into force, all monies in the fire-fighting fund have been allocated to cover costs and purposes totally unrelated to those initially intended, namely that of reducing the costs incurred by the State for firefighting services at airports.
It should be noted that the following provision was added to the Stability Act of 2016, which came into force on January 1, 2016:
"Article 39-bis, paragraph 1, of the Decree-Law of October 1, 2007, no. 159, as converted with amendments by the law of November 29, 2007, no. 222, after the words: ‘of the law of December 24, 2003, no. 350’ the following words are inserted: ‘and of fees charged to airport operating companies for fire-fighting services at airports, pursuant to article 1, paragraph 1328, of the Law of December 25, 2006, no. 296’."
The amended law redefines the contribution to be paid to the fund as consideration for the service rendered by the fire brigade, in order to eliminate the objections concerning the nature of the tax that were raised by airport operators and to return the matter to the jurisdiction of the regular courts, notwithstanding the judgments previously entered on this issue. By a judgment published on January 26, 2018, the Court of Rome ruled that the regular courts have no jurisdiction and that the case must revert to the Tax Commission.
The Supreme Court of Appeal, by order 27074/16, applied to the Constitutional Court for review of the constitutionality of this provision.
Report from the Energy Services Operator as a result of an audit of the green certificates for district heating at the Linate power plant
In December 2016, the Energy Services Operator (GSE) sent to SEA’s energy subsidiary a report on its audit (carried out in March 2016) to verify the information provided for an application for green certification of the district heating supplied by Linate power plant. The GSE demanded the return of 17,106 green certificates for the period 2010-2014 (of which 12,435 for the Company and 4,671 for A2A), as a result of which a provision for future charges in the amount of Euro 1,049 thousand was recognised, since those certificates were paid at December 31, 2016. The Company, assisted by its lawyers, lodged an appeal in timely fashion. Nonetheless in May 2017 it returned the green certificates requested by the agency and recognised an additional provision to cover the green certificates for the period 2015-2016, which had been fully paid at the end of the 2017 financial year.
Audit by the Energy Services Operator on the assignment of white certificates for the period 2012-2015
During 2017 the Energy Services Operator audited white certificates assigned for the period 2012-2015. The GSE assessed that no subsidies should be paid for heating and cooling energy used by certain internal departments; as a result, a provision for future charges of Euro 500 thousand was recognised, since such certificates had been fully collected at the end of the 2017 financial year.
Update on judgment 7241/2015 of the regular Court of Milan
On January 26, 2017, the Milan Court of Appeal upheld trial court ruling 7241/2015 of the Court of Milan ordering the Ministry of Transport to compensate SEA for Euro 31,618 thousand in addition to revaluations according to the ISTAT [cost of living] indices and interest at the legal rate. An enforceable copy of the judgment was served on the Ministry and the Prosecutor’s Office in February 2017. On April 14 2017 the Ministry of Transport appealed to the Supreme Court of Appeal, reiterating the grounds stated in the appeal without any substantial change.
On June 9, 2017 SEA filed a response and a cross-appeal at the Supreme Court of Appeal.
Tax Agency – VAT assessment notices
The local customs office at Linate and Malpensa airports audited SEA to ascertain whether excise duty had been correctly paid on the electricity used to operate Linate and Malpensa airports. As a result of this audit and of the notes, on November 16, 2016, SEA received service of an assessment notice for 2011 concerning the VAT profiles in the matter. An appeal was filed against the assessment at the Provincial Tax Commission of Milan, which ruled in favour of the Tax Agency on December 11, 2017 in judgment no. 6835/2017, against which an appeal was lodged with the Regional Tax Commission. We expect to be informed of a hearing date. On August 8 2017, the Tax Agency served four more assessment notices for the subsequent years from 2012 to 2015. The Company filed separate appeals against each of them with the Provincial Tax Commission for Milan, once again stating that the underlying tax claim was void. We expect to be informed of a hearing date.
Tax Agency - Notice of assessment for registration tax
Several assessments were received for registration tax relating to the refund of sums as ordered in the judgments entered by the regular Court of Milan. The Company objected to the Tax Agency that the tax had been mistakenly calculated as a proportional tax instead of at a flat rate. The first appeal filed and argued at the Provincial Tax Commission of Milan was granted. The Company’s request was deemed reasonable and the Tax Agency was ordered to reimburse the expenses. On December 28, 2017, the Tax Agency lodged an appeal with the Regional Tax Commission, whereupon the Company joined the proceedings. Regarding the other notices of assessment challenged by the Company, we expect to be informed of the dates for both the first and second level hearings.
Tax Agency - Corporate income tax assessment notice
In December 2016, as is known, SEA received a corporate income tax assessment notice for the 2011 tax year, concerning the allegedly incorrect application of the PEX tax scheme [tax exemption of capital gains] with specific reference to the capital gains that accrued from the sale of the equity holding in Aeropuertos Argentina 2000.
In 2017, the Company requested an internal review. While awaiting its outcome, and solely in order not to miss the deadline for an amicable resolution before going to trial, the Company also submitted a tax settlement proposal, since it did not consider the grounds adduced by Inland Revenue as completely cogent. In May 2017 the tax settlement proceedings concluded with a favourable outcome for the Company, since the initial tax claim was substantially reduced in view of the persuasive arguments that the Company had submitted, even in a situation where both the law and the standard procedures were ambivalent.
The sum total of the aforesaid contingencies and those relating to the disputes with the Tax Agency were fully reflected in the provision for tax risks set aside for these items.