Current Report No.: 26/2019

Date of preparation: 17.07.2019

Abbreviated name of the Issuer: CIECH S.A.

Legal basis: Art. 17.1 of the MAR – inside information

Subject: Information on the issue of a decision and receipt of a report as part of proceedings conducted by the Head of the Małopolskie Province Customs and Tax Office in Krakow

Contents of the Report:

The Management Board of CIECH S.A. (hereinafter referred to as “Issuer” or “CIECH”) herewith informs that on 17 July 2019, the commercial proxy of subsidiaries of the Issuer: Verbis ETA sp. z o.o. S.K.A. (hereinafter referred to as “Verbis Eta”) and CIECH Soda Polska S.A. (hereinafter referred to as “CSP”), the legal successor of Cerium Finance Sp. z o.o. (hereinafter referred to as “Cerium Finance”), (hereinafter jointly referred to as “Subsidiaries”), received:

1. Decision (hereinafter referred to as “Decision”) of the Head of the Małopolskie Province Customs and Tax Office in Krakow (hereinafter referred to as the “Authority”) in connection with the tax proceedings conducted against Verbis Eta by the Authority with respect to the settlement of VAT for the fourth quarter of 2013 (hereinafter referred to as “Proceeding I”),
2. Accounting Book Audit Report (hereinafter referred to as the “Report”) in connection with the tax proceedings conducted against CSP (legal successor of Cerium Finance) by the Authority with respect to the settlement of VAT for December 2014 (hereinafter referred to as “Proceeding II”).

The Authority challenged the right to deduct VAT from a part of the non-cash contribution (hereinafter referred to as the “Contribution-in-kind”) made by CIECH to the supplementary capital of Verbis Eta and the right to deduct VAT from the Contribution-in-kind made by CSP to the supplementary capital of Cerium Finance.

If this position is maintained in relation to Verbis Eta in Proceeding I and possible court and administrative proceedings, the consolidated result of the CIECH Group will be affected by the following amounts: PLN 30,775,122.00 (thirty million seven hundred and seventy-five thousand one hundred and twenty-two and 00/100 zlotys) due to VAT and interest which as of today amounts to PLN 13,898,551.00. Due to the fact that the entire amount of VAT was paid to the competent tax office, according to the current state of affairs - the consolidated cash flows of the CIECH Group may be affected by the payment of the aforementioned interest.

Maintaining an unfavourable position against CSP (legal successor of Cerium Finance) in Proceeding II and possible court and administrative proceedings due to the fact that according to the interpretation and position of persons carrying out the tax audit, Cerium Finance adjusted VAT, the consolidated result of the CIECH Group will be affected by the interest which as of today amounts to PLN 9,047,235.00. Due to the fact that the entire VAT amount, i.e. PLN 25,277,408.25, was paid to the competent tax office, according to the current state of affairs, the consolidated cash flows of the CIECH Group may be affected by the payment of the aforementioned interest.

The Subsidiaries subjected to the tax audit and their advisors do not agree with the position of the Authority. Therefore, Subsidiaries intend to take procedural measures to defend the tax consequences of their operations in 2013 and 2014. Their position is based, among others, on the fact that CIECH, CSP, Verbis Eta and Cerium Finance obtained tax interpretations issued by the Head of the National Tax Information Department, which confirm the correctness of operations performed by the Subsidiaries or tax interpretations that they complied with.

The Issuer informed about the Accounting Book Audit Report as part of Proceeding I in its Current Report No. 17/2019 of 22 May 2019.

The Issuer informed about pending Proceeding I and Proceeding II and about the amounts of potential tax liability in the consolidated statements of the CIECH Group. In the consolidated financial statements of the CIECH Group for 2018, Proceeding I and Proceeding II are described in note 9.2 in the section "Audits of tax settlements in the CIECH Group", with regard to VAT audits:

1. Proceeding I: “VAT audit for the fourth quarter of 2013 at VERBIS ETA Sp. z o.o. S.K.A.”,
2. Proceeding II: “VAT audit for December 2014 at Cerium Finance Sp. z o.o.” 

The Subsidiaries are analysing the Decision and the Report in terms of the appropriateness of creating a provision:

1. for interest and VAT which was not deducted – in Proceeding I,
2. for interest in Proceeding II. 

Legal basis: article 17.1 of the Regulation of the European Parliament and of the Council (EU) No. 596/2014 of 16 April 2014 on Market Abuse (the Market Abuse Regulation) and repealing Directive 2003/6/EC of the European Parliament and of the Council and Commission Directives 2003/124/EC, 2003/125/EC and 2004/72/EC (Official Journal of the European Union L No. 173, p. 1) (the “MAR”).