A. Consolidated tax group
Cintra, S.A. has fi led consolidated tax returns since 2002. The following companies form the consolidated tax group in 2008, together with Cintra S.A. (parent): Autopista de Toronto, S.L., Autema S.A., Ausol, S.A, Laertida, S.L., Cintra Autopistas Inte- gradas, S.A., Cintra Aparcamientos, S.A., Dornier, S.A., Femet, S.A., Balsol 2001, S.A., Autopista Alcalá O´Donnell, S.A., Cintra Inversora de Autopistas de Cataluña, S.L., Inversora Autopistas de Cataluña, S.L. The companies Inversora de Autopistas del Sur, S.L. (parent) and Autopista Madrid Sur, S.A. (subsidiary), and the companies Inversora de Autopistas de Levante, S.L. (parent) and Autopista Madrid Levante, S.A. (subsidiary) also fi le consoli- dated tax returns as separate groups.
2008
B. Years open to tax audit
On 14 January 2008, Cintra, S.A., as the parent of the tax group, received notice of the start of a tax audit of corporate income tax for the period 2003-2005.
Several companies of the Cintra Group are also undergoing general tax audits of value added tax (2004-2005) and personal income tax (2004-2005).
The tax inspectorate has requested the extension of the proceedings for an additional year, as the data compilation and
follow-up process is still under way.
As a result of actions that may be undertaken by the tax au- thorities in connection with the years open to tax audit, contin- gent tax liabilities could arise that cannot be objectively quanti- fi ed. Nonetheless, the parent company’s Directors consider that any liabilities arising in this connection will not be material.
C. Reconciliation of reported and taxable income
Set out below is the reconciliation of reported income and the income tax base:
Item
Million euro
2008 2007
Increase Decrease TOTAL Increase Decrease TOTAL
Reported consolidated result for the year before taxes -59 -143
Permanent differences:
From individual companies (Spain) - -15 -15 17 - 1 16
From individual companies (abroad) 22 -12 10 10 - 6 3
From net consolidation adjustments -2 -68
Temporary differences:
Arising in the year 410 -277 133 624 -307 317
Arising in prior years 49 -120 -71 96 -226 -130
Offset of tax-loss carryforwards - -65
Taxable result -5 -69
In 2008 the Chilean companies and the car park companies were classifi ed as discontinued operations. The 2007 data have not been changed with respect to the data refl ected in the 2007 consolidated fi nancial statements and include the impact of the Chilean companies and car park companies on the income statement.
D. Tax rates
Income tax expense is calculated at the tax rates in force in each country: Spain 30%, Portugal 26.5%, Canada 33.5%, United States 40.5%, Poland 19%, Italy 31.40%, Ireland 12.5% and Greece 25%. In accordance with
International Financial Reporting Standards and standard practices in Spain, tax on repatriated profi ts generated abroad is also recognised, to the extent that there are plans to repatriate profi ts within a reasonable period of time.
In 2008 and 2007, the Cintra Group recognised tax credits of 80 million euro and 146 million euro, respectively.
In view of the signifi cance of the Group’s activities in Spain, USA and Canada, set out below is a reconciliation of results before income tax and the tax credit recognised in 2008 by country:
2008
Million euro 2008
Spain USA Canada Other
countries Total
Country tax rate (a) 30.00% 40.24% 29.00% 24.31%
Result before income tax -54 -97 54 38 -59
Tax calculated at the country tax rate -16 -39 16 9 -30
Consolidation adjustments -1 - - - -1
Permanent differences - -1 3 1 3
Tax credits (b) - - -37 - -37
Other -4 - - - -4
Tax expense/(tax credit) -21 -40 -18 10 -69
Effective rate 39.41% 40.79% -33.83% 24.04% 119.10%
Change in estimates of deferred taxes - - - - 0
Regularisation of prior-year tax -10 -1 - - -11
Tax expense/(tax credit) -31 -40 -18 10 -80
135.99%
(a) For USA and Other countries, the weighted average tax rate has been used, this being the aggregate tax rate applied in each country, or state in the case of USA, in proportion to the result before tax generated in each case. For Canada, a rate of 29% has been used, this being the tax rate applicable when the defe- rred tax assets and liabilities are expected to be recovered.
(b) Recognition of tax credits for tax-loss carryforwards and other deferred tax assets generated by 407 International Inc in previous years that had not previously been capitalised, due to the increase in the likelihood of their potential utilisation in coming years.
The reconciliation between results before income tax and the tax credits recognised in 2007 by country is as follows:
Million euro 2007
Spain USA Other
countries Canada Chile Total
Country tax rate (a) 32.50% 40.25% 19.85% 36.12% 17%
Result before income tax 7 -113 12 41 -91 -143
Tax calculated at the country tax rate 2 -46 2 15 -15 -41
Consolidation adjustments 1 -23 - - - -22
Permanent differences - 2 - - -1 1
Tax credits (b) - - - -15 - -15
Other -2 - - - - -2
Tax expense/(tax credit) 2 -67 2 0 -16 -79
Effective rate 23.00% 58.94% 21.10% -1.46% 17.77% 55.29%
Change in estimates of deferred taxes -41 - - - -26 -67
Regularisation of prior-year tax -16 5 -3 - 14 0
Tax expense/(tax credit) -55 -62 -1 0 -28 -146
101.51%
(a) For USA and Other countries, the weighted average tax rate has been used, this being the aggregate tax rate applied in each country, or state in the case of USA, in proportion to the result before tax generated in each case.
(b) Relates to the application of the tax-loss carryforwards ge- nerated by 407 International Inc that were not previously recog- nised because this company has a policy of recognising deferred tax assets up to the amount of its deferred tax liabilities.
2008
Set out below is a breakdown of tax credits for the year:
Breakdown of tax credits Million euro
2008 2007
Current-year tax credit -51 -19
Deferred tax -18 -60
Change in estimates of deferred taxes - -67
Prior-year tax credit -11 -
Tax credit for the year -80 -146
E. Movements in deferred taxes
Movements in deferred tax assets and liabilities in 2008 and 2007 are set out below:
2008 Million euro
Asset Liability
Balance 31.12.07 626 161
Discontinued operations -98 -36
Transfers and other 37 -6
Originated in the year 123 82
Recovered -36 -15
Impact on equity 486 45
Effect of exchange rate 6 5
Balance 31.12.08 1,144 236
2007 Million euro
Asset Liability
Balance 31.12.06 421 192
Additions to consolidation scope and other -38 -79
Originated in the year 203 100
Recovered -73 -31
Impact of updated tax rate on results -2 -
Impact on equity 115 -20
Balance 31.12.07 626 161
Set out below is an analysis of the main deferred tax assets and liabilities recognised by the Group showing movements during 2008: Items Million euro Balance 01/01/08 Transfers and other Charged / credited to income statement Discontinued operations Charged / credited to equity Effect of exchange rate Balance 31/12/08
Deferred tax assets
Depreciation, concessions 52 20 -33 -2 - -3 34
Capitalised fi nancial expenses 15 -10 -2 -1 - - 2
Derivatives 145 3 52 -9 492 4 687
Tax credits (c) 177 31 36 -3 - 4 245
Difference in accounting and tax accrual 8 -2 - -2 - - 4
Provisions and other 229 -6 34 -81 -5 1 172
Total 626 36 87 -98 487 6 1,144
Deferred tax liabilities
Derivatives 40 -36 46 - 45 2 97
Depreciation 34 5 1 -5 - 3 38
Difference in accounting and tax accrual 1 -1 6 - - - 6
Capitalised fi nancial expenses 38 -1 6 -36 - - 7
Other 48 26 9 5 - - 88
Total 161 -7 68 -36 45 5 236
(c) All the Group’s tax losses in the USA have been capitalised net of deferred tax liabilities, which reverse in the same country, at the same tax rate and on similar dates.
2008
In 2008, the Chilean companies and the Car park business were classifi ed as discontinued operations. This caused a decrea- se in deferred tax assets and liabilities totalling 98 million euro and 36 million euro, respectively.
At 31 December 2008, the Cintra Group companies recognise tax-loss carryforwards totalling 1,355 million euro, entailing a tax credit of 492 million euro, calculated at the tax rate applica- ble in each country. The deferred tax asset recognised in respect of tax losses totals 245 million euro, after offsetting deferred tax liabilities of 247 million euro.
Tax-loss carryforwards and tax credits recognised at the tax rate applicable in each country at 31 December 2008 are analy- sed below:
Million euro
Country Tax losses Available until Tax credit
United States 873 2025-2027 350
Spain 303 2016-2023 92
Canada 162 2010-2027 48
Ireland 17 No lapsing date 2
Total 1,355 492
This table does not include tax-loss carryforwards of 1,216 million euro and related tax credits of 207 million euro that are classifi ed as held for sale.
Additionally, the Group records tax deductions for investments and other items pending application at 31 December 2008 for a total of 184 million euro (182 million euro in 2007).
>
> 21. Contingent liabilities, contingent assets
and commitments
21.1 Contingent liabilities
Litigation and risk of an increase in the cost of expropriations for toll roads in the Madrid Region
During 2008, the Supreme Court sent notice of rulings relating to the valuation of land in toll road expropriations in the Madrid region.
In general, with respect to the land expropriated to build the radial toll roads, the rulings state that the land must be valued based on its classifi cation and, therefore, that non-building land must be valued as such rather than under the general system. However, the rulings signifi cantly raise the value of non-building land initially envisaged. Moreover, as regards the land expropria- ted to execute the M-45 ring road in Madrid, the Supreme Court has stated that the land expropriated forms part of a general system and must therefore be valued as building land, irrespective
of the specifi c classifi cation of that land. The value of the non- building land, in particular, is therefore considerably higher than initially envisaged. It is reasonable to assume that this approach is also applicable to the land required for the Madrid M-50 ring road, in accordance with the stance already adopted by the Ma- drid High Court.
The amount of the expropriations is estimated based on the rulings from the relevant Expropriation Jury, by directly applying the amount stated in the ruling, if applicable. Where no amount is stated, the amount stated in similar cases is used and adjustments are made, if appropriate, to account for specifi c circumstances. Estimated accrued interest is also taken into consideration.
In any event, the Company considers that the concession com- panies in Madrid will reasonably be entitled to receive indemnities to restore the fi nancial balance of the concession.
Other Cintra Group companies are also the defendants in a number of lawsuits. The effect of the litigation described above on the accompanying fi nancial statements should not be material.
Other contingent liabilities
Cintra has furnished guarantees as parent company in connec- tion with the following projects:
- A. Talca-Chillán - Guarantees limited to the increase in ope- rating and maintenance costs in the event of departures from costs estimated.
- A. Santiago Talca - Guarantee covering the completion of outstanding construction work in the event that the execution period extends beyond 31 December 2011.
- Euroscut Norte - Guarantee limited to the excess cost of expro- priations during the expropriation period.
- A. R-4 Madrid Sur - Guarantee limited to 49 million euro for all items during the term of the debt, covering debt servicing, refi nancing, reduction in ratios and penalties.
- A. Madrid Levante - Guarantee limited to 4 million euro for debt servicing during the term of the debt.
- Euroscut Azores - Guarantee limited to 10 million euro to 2017 as required by Article 35 of the Portuguese Companies Act. - SH130 - Guarantee limited to 22.7 million USD for the excess
cost of expropriations during the construction period and a guarantee limited to 19.5 million USD for debt servicing during the fi rst fi ve years of operations.
Bank guarantees
At 31 December 2008, the companies recognise bank guaran- tees furnished for a total of 637 million euro (627 million euro in 2007) relating mainly to bids tendered, fee payments and other obligations.
2008
21.2 Commitments to purchase and/or invest in non- current assets
Commitments to invest in construction work contracted at the balance sheet date but not recognised in the consolidated fi nancial statements amount to 2,047 million euro, the most sig- nifi cant commitments relating to the following projects: SH-130 (601 million euro), Nea Odos (360 million euro), Central Greece (456 million euro), Euroscut Azores (218 million euro) and Euro- link M3 (132 million euro). Commitments relating to car parks total 151 million euro.
The commitments to invest in construction projects will be fi nanced by borrowings obtained by each concession holder.
21.3 Operating and fi nance lease commitments
The expense recognised in the income statement during 2008 in respect of operating leases totals 4 million euro (9 million euro in 2007).
Future total minimum payments on non-cancellable operating leases are shown below:
Million euro 2008 2007
Less than one year 3 3
Between one and fi ve years 1 1
More than fi ve years 1 1
TOTAL 5 5
21.4 Environmental commitments
Any operation designed mainly to prevent, reduce or repair da- mage to the environment is treated as an environmental activity.
Investments in environmental activities are measured at acqui- sition cost and capitalised when incurred as an increase in the cost of non-current assets, applying the methods described in Note 2 on accounting policies.
Costs incurred to protect and improve the environment are taken to the income statement when incurred, irrespective of when the related monetary or fi nancial fl ows take place.
Provisions for probable or certain environmental liabilities, litigation in progress and indemnities or other outstanding obli- gations not covered by insurance policies are recorded when the liability or obligation arises.
Environmental assets
Recognised environmental assets relate to the investment made in the toll road activities, the purpose being to analyse
environmental impact and protect the environment. The amount capitalised relates mainly to the investment made by Ausol in landscape recovery, sound impact studies and other general activities. Throughout the construction of the Malaga-Estepona and Estepona-Guadiaro stretches, the Company included in non-current assets the cost of all the measures implemented to protect the environment. All these amounts are recognised as an increase in the toll road investment and total 31 million euro.
The Company recognises property, plant and equipment con- sisting of machinery and vehicles used in activities designed to protect and improve the environment. This work is performed by the company’s own employees and by external specialists. The rest of the costs incurred during the year to protect and improve the environment were immaterial.
Eurolink M4-M6 also recognises environmental assets amoun- ting to 15 million euro.
Other environmental protection costs incurred in 2008 total 1 million euro.
Environmental provisions
In the infrastructures segment, no provisions have been recorded for environmental liabilities and charges and there are no long-term environmental obligations as the directors consider that there are no risks in this respect.
21.5 Financing of investment commitments
Non-current asset investment commitments are fi nanced by means of debt, capital and, in some cases, contributions from the State. As indicated in Note 3.6 on equity management, each project has a leverage level linked to operating variables or estimated future fl ows. Project debt structures are analysed in Note 17 on net cash.