Fiat Chrysler has challenged a claim by Italy's tax authorities over the valuing of its US Chrysler business that could leave it with an unwanted tax bill just days ahead of an expected key merger agreement with PSA.
A Reuters source said the agency believed FCA had underestimated the value of its US business, after its phased acquisition of Chrysler by EUR5.1bn.
"We strongly disagree with this preliminary report," an FCA spokesperson told the news agency.
The tax audit comes at a delicate time for the carmaker which is finalising talks with PSA over a planned $50bn merger to create the world's fourth-largest automaker.
A Reuters source "close to PSA" said the information was public and came as no surprise for the French carmaker.
The tax audit is "another complication" in the way of a binding merger agreement with PSA but one but which FCA can manage, an analyst at Italian broker Equita said.
"We think it will be less relevant than the GM lawsuit, as negotiations with tax authorities are ongoing, which are expected to be closed by year end and possibly leading to an accord on a much lower amount," Martino De Ambroggi told Reuters.
The Italian tax authority audit, which concerns transactions dating back to 2014, could result in FCA having to pay back taxes for $1.5bn, the Reuters source said.
"We are confident we will successfully make the case for a material reduction in the assessment," the FCA spokesperson told the news agency.
In its third-quarter report in October, FCA said Italy's inland revenue had issued the company with a final audit report in October this year. It said the issuance of a final audit report starts a 60-day negotiation period, which ends with the issuance of a final audit assessment expected to be received by the end of December 2019. If confirmed, the audit could result in a material proposed tax adjustment relating to the 2014 merger of Fiat into FCA NV, it said.
"Any remaining taxable gain assessed would be offset by carry forward tax losses with no material cash outflow or impact on earnings," the FCA spokesman told Reuters.
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