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PRESS RELEASE
Ter Beke also wins in appeal in the legal proceedings relating to the pending captive-dispute
Waarschoot 7 May 2008 - The Court of Appeals of Ghent rejects the appeal by the tax administration and confirms the annulment of 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;
(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 argued 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 Tribunal of First Instance of Ghent upheld Ter Beke's position. The "underestimation of assets" assessment was therefore annulled.
The tax administration lodged an appeal against this judgement.
In a detailed judgement of 6 May 2008, the Court of Appeals of Ghent rejected the appeal by the tax authorities and thus confirmed the judgement of the Court of First Instance.
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).
The tax authorities can appeal this decision before the Supreme Court if they believe the judgement violates certain legal provisions.
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. The Court of Appeals cannot rule in this stage on the admissibility of such a replacement assessment. However, Ter Beke does not expect that such replacement assessment is still possible as the court of Appeals explicitly stated that the deduction of the insurance premiums cannot be rejected.
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 by the Supreme Court or a replacement assessment, Ter Beke group is under no duty to actually pay these deferred taxes on short term.
For more information, please contact:
| René Stevens Group CFO Telephone: +32 (0)3 370 13 45 E-mail: rene.stevens@terbeke.com |
FINANCIAL CALENDAR
| Trading update first quarter 2008 | 9 May 2008 after market close |
| Annual report | 13 May 2008 |
| General Meeting 2008 | 29 May 2008 at 11 a.m. |
| Dividend payment | 16 June 2008 |
| Half year results 2008 | 29 August 2008 after market close |
| Business Update third quarter 2008 | 12 November 2008 after market close |
TER BEKE IN BRIEF
Ter Beke (Euronext Brussels: TERB) is an innovative Belgian fresh food group selling its range of products in 10 European countries. The group has 2 core businesses: processed meats and fresh ready meals, possesses 10 industrial sites in Belgium, the Netherlands and France and counts about 1,800 people. In 2008, Ter Beke recorded a turnover of 393 million EUR.
Processed Meats Division: Ter Beke-Pluma
- Producer of processed meats for the Benelux, the United Kingdom and Germany;
- 4 production sites in Belgium (Wommelgem, Waarschoot, Marche-en-Famenne and Herstal) and 5 centres for slicing and packaging of processed meats, including 2 in Belgium (Wommelgem and Veurne) and 3 in the Netherlands (Milsbeek, Ridderkerk and Hendrik Ido Ambacht);
- Innovative in the segment of pre-packaged processed meats;
- Distribution brands and own brand names L´Ardennaise and Daniël Coopman;
- Approximately 1050 employees.
Ready Meals Division: FreshMeals
- Producer of fresh ready meals for the European market;
- Europe market leader in fresh lasagne;
- 3 production sites, including 2 in Belgium (Wanze and Marche-en-Famenne) and 1 in France (Alby-sur-Chéran);
- Brand names Come a Casa, Pronto and Vamos along with distribution brands;
- Approximately 750 employees