As mentioned in its annual reports for 2006 and 2007, Orkla has proceeded on the basis that the gain realised in 2006 on the option element of convertible bonds in Renewable Energy Corporation ASA (REC) is tax-free according to the exemption method. As disclosed in Note 21 in Orkla's annual report for 2007, the Central Tax Office for Large Enterprises (SfS) announced that it is considering changing the tax assessment for 2006 and imposing a 28 % tax on the entire gain. Orkla has now received a draft decision by the SfS whereby it maintains full taxation and assesses the value of each REC share at the date of conversion in early March 2006 at NOK 81.50.
Orkla disagrees both with the cited basis for tax liability and with the assessed value indicated in the draft decision. Should a decision be made in line with the draft, Orkla will follow it up with an appeal or legal action.
If a decision is made in line with the draft, however, Orkla will have to pay the amount of NOK 751 million and then appeal the decision. Based on previous indications from SfS, Orkla has already made an accounting provision in its financial statements in anticipation of a claim of tax liability (but based on a substantially lower valuation of the REC shares at the date of conversion). A decision in line with the draft will therefore entail that the accounting tax cost will increase by approximately NOK 500 million in the 2008 financial statements since the financial statements will be prepared and presented on the basis of SfS's decision even though Orkla disagrees with SfS's view.
Oslo, 5 November 2008
Rune Helland, SVP Orkla Investor Relations
Tel: +47 22 54 44 11
Ole Kristian Lunde, SVP Corporate Communications
Tel.: +47 22 54 44 31
Lars Røsæg, Orkla Investor Relations,
Tel: +47 2254 44 26