4. THE AGENTS INVOLVED IN THE ILLEGAL EXCHANGES OF SILVER IN CADIZ
4.1. The Spanish merchants versus the foreign merchants
Companies consolidated by the global integration method:
Santander Central Hispano Investment Securities Inc. 159,671 133,431 123,580
Patagon Euro, S.L. 157,135 — —
Patagon Internet Bank (formerly Open Bank) 123,099 111,957 70,709
Santander Investment Bank 104,274 46,284 37,191
Santander Consumer Finance, S.A. 78,995 57,565 98,458
Banco Santander Colombia (Consolidated Group) 68,914 69,741 77,044
Santander Merchant Bank 41,764 71,977 75,722
Santander Financial Products 31,203 37,281 68,029
Capital Riesgo Internet, S.C.R. 24,898 11,582 114
Other companies 256,638 377,946 331,787
1,046,591 917,764 882,634
Companies carried by the equity method 142,871 30,592 53,278
Translation differences (*) 3,245,717 578,773 51,465
Of which:
Translation differences due to devaluation in Argentina 981,597 505,379 —
Total accumulated losses at consolidated companies 4,435,179 1,527,129 987,377
Net balance (242,578) 1,545,870 1,041,586
(*) Of which E1,602 million relate to the performance of the Brazilian real.
195 (22) Tax matters
Consolidated Tax Group
In accordance with current regulations, the Consolidated Tax Group includes Banco Santander Central Hispano, S.A. (as the parent company) and the Spanish subsidiaries that meet the requirements stipulated in the regulations on taxation of the consolidated net income of corporate groups (as the controlled companies).
The other Group banks and companies file individual tax returns in accordance with the tax regulations applicable in the respective countries.
Years open for tax audit
The years open for tax audit in the Consolidated Tax Group as of December 31, 2002, are 1999, 2000, 2001 and 2002 for the main taxes applicable to it. Also, the Consolidated Tax Group whose parent bank was the former Banco Central Hispano Americano, S.A. has the years 1998 and 1999 open for inspection.
The other Spanish consolidated entities generally have the last four years open for review by the tax inspection authorities with respect to the main taxes applicable to them, except in the case of those companies for which the statute of limitations has been interrupted due to tax audits.
In 2002 there were no significant developments in the matters contested at the different instances (stages) of the tax disputes pending resolution as of December 31, 2001.
In 2001 tax assessments were received relating to the Consolidated Tax Group headed by the former Banco Central Hispano Americano, S.A. for corporate income tax from 1993 to 1995, VAT from 1992 to 1997 and withholdings for 1996 and 1997; the amounts that were contested totaled E59,572 thousand. This amount relates mainly to corporate income tax timing differences. Also, it should be noted that in practically all cases the field tax inspector considered that the taxpayer’s behavior was not a tax infringement, and, accordingly, no penalty was imposed. In 2002 tax assessments were received
relating to 1996, 1997 and 1998 for total amounts E48,143 thousand, of which E39,097 thousand was contested.
The Bank’s directors consider that the liabilities, if any, which might arise as a result of these claims would not have a material effect on the 2002 consolidated statement of income.
Because of the possible different interpretations which can be made of the tax regulations, the outcome of future reviews of the open years by the tax authorities might give rise to contingent tax liabilities which cannot be objectively quantified.
However, the Bank’s tax advisers consider it unlikely that such contingent liabilities will materialize or that the contingent liabilities relating to the inspectors' assessments referred to above will become actual liabilities, and that in any event the tax charge which might arise therefrom would not materially affect the consolidated financial statements of the Group.
Since 1992 the Madrid Central Court number 3 has had preliminary court proceedings in progress to determine the liabilities which might arise in connection with certain credit assignment transactions carried out by Banco Santander, S.A.
from 1987 to 1989. The Bank and its internal and external advisers consider that the result of this litigation will finally be in its favor and that no additional specific provision is required. This opinion was corroborated by the dismissal order by the aforementioned Court on July 16, 1996, which signified a considerable advance in this connection. On June 27, 2002, it was decided to transform the aforementioned preliminary court proceedings into abridged proceedings, and the above-mentioned decision was appealed against by the Public Prosecutor’s Office and Bank management. The court has decided to stay the proceedings until the appeals filed are finally settled.
In any event, following its traditional prudent criteria, the Group has recorded reasonable provisions to cover any contingencies which might arise from the above-mentioned situations
196
Reconciliation
The reconciliation of the corporate income tax expense calculated at the standard rate to the recorded corporate income tax expense is as follows:
Thousands of Euros 2002 2001 2000
Corporate income tax at the standard rate of 35% 1,228,062 1,483,057 1,320,898
Permanent differences:
Amounts arising from consolidation (*) (499,646) (598,682) (185,917)
Tax credits and elimination of double taxation of dividends (18,830) (18,598) (441,900) Effect of allocation of the Group’s share in income of
companies carried by the equity method 13,523 44,619 21,787
(504,953) (572,661) (606,030)
«Corporate Income Tax» and «Other Taxes», per
consolidated statements of income 723,109 910,396 714,868
(*) Including the net tax effect of all the consolidation adjustments treated as permanent differences by the Group, which relate mainly to writedowns, and the differences arising from the different tax rates in Spain and in other countries.
Thousands of Euros 2002 2001 2000
Other assets – Prepaid taxes 4,418,761 4,639,242 4,311,595
Of which:
Banespa 1,200,239 1,889,384 1,852,464
Early retirements in 1999 258,591 304,948 360,331
Early retirements in 2000 (Note 2-j) 205,676 241,613 267,338
Early retirements in 2001 (Note 2-j) 216,205 243,547 —
Early retirements in 2002 (Note 2-j) 484,101 — —
Writedowns inherent to the merger 54,112 62,776 76,419
Other liabilities – Tax collection accounts and deferred taxes 2,587,226 2,666,120 2,577,050 Of which:
Tax collection accounts 1,959,378 1,943,481 1,590,873
Deferred tax on merger surpluses 105,390 110,436 114,102
The Bank and certain of the other Spanish consolidated companies have availed themselves of the tax credits available under corporate income tax legislation. Although the 2002 corporate income tax return has not yet been filed, the provision for 2002 corporate income tax shown in the consolidated balance sheet as of December 31, 2002, and the consolidated statement of income for the year then ended, is net of the related investment, dividend double taxation and international double taxation tax credits recorded in the balance of «Permanent Differences»in the foregoing reconciliation.
Other assets and other liabilities
The balance of the «Other Assets»caption in the consolidated balance sheets includes balances receivable from the tax authorities relating to prepaid corporate income tax. The balance of the «Other Liabilities»caption includes the liability for the various deferred taxes of the Group and the tax collection accounts.
The detail of the two balances is as follows:
197 (23) Memorandum accounts, futures transactions and
off-balance-sheet funds under management Memorandum accounts
The «Memorandum Accounts» caption in the consolidated balance sheets includes the following commitments and
contingent liabilities of the Group that arose in the normal course of its operations:
Thousands of Euro 2002 2001 2000
Contingent liabilities:
Rediscounts, endorsements and acceptances 45,087 93,505 32,286
Assets assigned to sundry obligations 185,620 258,117 211,406
Guarantees and other sureties 23,862,776 26,101,265 22,208,058
Other contingent liabilities 3,609,177 4,900,196 4,769,344
27,702,660 31,353,083 27,221,094 Commitments:
Sales with repurchase option 466,644 18,199 3,050,034
Balances drawable by third parties:
Credit institutions 1,047,363 1,596,114 3,423,605
Public authorities 2,246,066 2,708,750 2,972,510
Other sectors 45,810,366 45,315,994 47,921,634
Other commitments 5,206,970 4,613,970 5,012,874
54,777,409 54,253,027 62,380,657 82,480,069 85,606,110 89,601,751
198
Futures transactions
The detail, by term to maturity, of the notional and/or contractual amounts of each type of derivative arranged by the Group as of December 31, 2002, is as follows:
Other information
The aforementioned notional and/or contractual amounts of these transactions do not necessarily reflect the actual risk assumed by the Group, since the net position in these financial instruments is the result of offset and/or combination thereof. This net position is used by the Group basically to hedge the interest rate risk, the price of the underlying asset or the currency risk, the resulting gains or losses on which are included under the «Gains (Losses)
on Financial Transactions»caption in the consolidated statements of income and, where appropriate, as an increase in, or offset of, the results on the investments for which these hedging contracts were arranged (Note 25).
Off-balance-sheet funds under management
The detail of the off-balance-sheet funds under management by the Group is as follows:
Millions of Euros
Guaranteed Up to 1 1 to 5 5 to 10 Over 10 Mutual
Year Years Years Years Funds (**) Total
Unmatured foreign currency purchase
and sale transactions: 60,879 8,229 336 — — 69,444
Purchases of foreign currencies against euros 14,851 2,544 219 — — 17,614
Purchases of foreign currencies against
foreign currencies 32,229 4,057 116 — — 36,402
Sales of foreign currencies against euros 13,799 1,628 1 — — 15,428
Financial asset purchase and sale transactions (*): 1,285 1,403 2,699 237 — 5,624
Purchases 188 930 1,513 89 — 2,720
Sales 1,097 473 1,186 148 — 2,904
Securities and interest rate futures (*): 36,503 11,905 374 — — 48,782
Purchased 29,880 10,975 — — — 40,855
Sold 6,623 930 374 — — 7,927
Options on securities (*): 11,224 26,055 17 — 8,908 46,204
Purchased 7,261 9,254 1 — — 16,516
Written 3,963 16,801 16 — 8,908 29,688
Options on interest rates (*): 21,570 23,890 4,375 4,646 — 54,481
Purchased 15,619 11,507 1,864 1,266 — 30,256
Written 5,951 12,383 2,511 3,380 — 24,225
Options on foreign currencies: 3,837 168 1 — — 4,006
Purchased 1,236 67 — — — 1,303
Written 2,601 101 1 — — 2,703
Other interest rate transactions: 361,413 132,117 50,811 14,740 — 559,081
Forward rate agreements (FRA’s) 100,924 10,936 — — — 111,860
Interest rate swaps (IRS’s) 243,956 119,673 50,686 14,740 — 429,055
Other 16,533 1,508 125 — — 18,166
Futures commodity transactions 1 — — — — 1
496,712 203,767 58,613 19,623 8,908 787,623
(*) Based on the term of the underlying asset.
(**) Guaranteed assets.
Millions of Euros 2002 2001 2000
Mutual funds 68,140 68,535 65,012
Pension funds 17,513 18,842 16,397
Assets under management 7,685 7,870 7,239
93,338 95,247 88,648
199 (24) Transactions with nonconsolidable Group companies
and with associated companies
The detail of the Group’s main balances with nonconsolidable companies controlled by it and with associated companies, and
of the impact of the transactions with them on the statements of income, is as follows:
Thousands of Euros 2002 2001 2000
ASSETS:
Due from credit institutions 54,982 1,319,642 557,674
Debentures and other fixed-income securities 18,794 122,450 —
Loans and credits 1,364,470 1,476,669 1,501,827
Common stock and other equity securities — 51,062 48,363
1,438,246 2,969,823 2,107,864 LIABILITIES:
Due to credit institutions 414,493 664,725 97,045
Customer deposits 1,266,467 899,992 465,304
1,680,960 1,564,717 562,349