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PRESS RELEASE

Ter Beke wins at first instance in the legal proceedings relating to the pending captive-dispute

Waarschoot 8 May 2007 – The Tribunal of First Instance of Ghent annuls the additional taxation imposed on Ter Beke with regard to the captive reinsurance structure.

A reinsurance captive is a registered reinsurance company which reinsures a large part of the risk that an insurance company bears under certain insurance contracts. This type of reinsurance company belongs to the same group of companies as the ultimate policyholder of these contracts.

Working with their own insurance or reinsurance captive allows companies to insure risks which they would otherwise not be able to insure or only at a prohibitive price, whilst also keeping the greater part of the insurance premiums within the group. This "captive technique" is generally accepted throughout the world.

Ter Beke has been insuring itself in this way since 1992 against:
(1) financial losses caused by rarity of raw materials and/or abnormal increases in the price of raw materials;
(2) the financial damage caused by product recalls; and
(3) the credit risk on its commercial receivables.

For this purpose, Ter Beke takes out insurance policies with a Belgian insurance company, which in turn reinsures a large part of its risk with Ter Beke Luxembourg SA (the 'reinsurance captive'), a company which belongs to the Ter Beke group and is registered as a reinsurance company under Luxembourg regulations.

Over the years, Ter Beke repeatedly filed claims under these insurance policies as a result of actual losses and received payouts from its insurer.

In October 2000, Ter Beke received a tax adjustment for tax year 1998 in which the aforementioned insurance structure was deemed a 'sham' by the tax authorities. In this document the Special Tax Inspection argues that reinsurance with a group company is not compatible with genuine insurance contracts, and that Ter Beke actually constituted an "off-balance provision". The Special Tax Inspection deduces from this that Ter Beke has a claim (which is not included in its accounts) against the Luxembourg reinsurance company that could be taxed as an "underestimation of assets".

On this basis, the taxable profit of Ter Beke for tax year 1998 was increased by EUR 7.7 million, i.e. the amount of the reserves constituted by the Luxembourg reinsurance company. This resulted in an additional tax assessment of around EUR 4 million. The tax authorities also increased the taxable basis of Ter Beke for the following tax years, each time there was an increase in the reserves of the Luxembourg reinsurance company.

Ter Beke filed an administrative appeal against all the additional tax assessments.

As the Regional Directorate never took a decision on these administrative appeals and as the amount of the additional tax assessments continues to grow every year, Ter Beke started legal proceedings against the tax authorities on 30 June 2005, with respect to tax year 1998.

In the legal proceedings, Ter Beke argued that the combination of insurance and reinsurance with a group company cannot be considered as an "off-balance provision" from a tax perspective, since Ter Beke has legally no direct claim against the reinsurance company. This means that tax has been assessed on a legally inexistent claim, which violates the principle that tax can be levied only on actual situations.

In a detailed judgment of 4 May 2007, the three judges of the Tribunal of First Instance of Ghent upheld Ter Beke's position. Ter Beke accepted all the consequences of the legal transactions carried out, such that the tax authorities must respect the legal reality of the insurance structure. The "underestimation of assets" assessment was therefore annulled.

According to the counsel of Ter Beke, Patrick Smet (partner at Allen & Overy), the judges have taken into account that Ter Beke made proper use of the reinsurance structure: only real business risks are insured, the premiums conform to market rates, and there have been significant damages payouts (which were indeed taxed at the level of Ter Beke).

As this is a decision at first instance, the tax authorities can appeal this decision. Ter Beke is however hopeful that, in case of appeal, the Court of Appeal of Ghent will come to the same conclusion.

The tax authorities also have the possibility, in certain cases when a tax assessment is annulled on a technicality, to issue a replacement assessment (for example based on a rejection of the tax deductibility of the insurance premiums). As the "underestimation of assets" assessment was not annulled on a technicality but because the tax authorities must respect the legal reality of the insurance structure, Ter Beke does not expect such new taxation to be possible. Further, Ter Beke had asked the Tribunal to rule that no new taxation was possible for procedural/technical reasons. The Tribunal has reopened the case to allow the parties to make submissions on this point of procedure.

This favourable judgement does not affect the consolidated IFRS-figures of Ter Beke group, as the group set up the necessary deferred tax liabilities. However, because of the judgement, save in case of reversal in appeal or a replacement assessment, Ter Beke group is under no duty to actually pay these deferred taxes on short term.

If you have further questions, please feel free to contact: René Stevens
Group CFO
Tel: +32 9 370 13 45
René.stevens@terbeke.be

TER BEKE IN BRIEF

Ter Beke (Euronext Brussels: TERB) is an innovating Belgian fresh foods group, selling its range of products in 10 European countries. The group has 2 core activities: processed meats and fresh ready meals; it has 9 industrial establishments in Belgium, the Netherlands and France and employs circa 1,700 people.

Processed Meats Division: Ter Beke-Pluma NV

Ready Meals Division: FreshMeals NV