REC Silicon Annual Report 2019

77 Notes to the consolidated financial statements, REC Silicon Group REC Silicon Annual Report 2019 CLAIMS, DISPUTES, CONTINGENT LIABILITIES AND CONTINGENT ASSETS The Group is involved in legal disputes in the ordinary course of business. Provisions are recognized for the expected outcomes in accordance with applicable accounting rules. Provisions are based on GroupManagement’s estimate of likely outcomes based on prior experience, the source, and the facts and circumstances of a claim. The final outcomes of such disputes and litigation are subject to significant uncertainty and actual outcomes may vary from provisions recognized. Provisions are adjusted to reflect the most recent facts and circumstances. CHINESE TARIFFS ON US POLYSILICON RECSilicon’s access to polysiliconmarkets in China continues to be restricted by tariffs imposed by the Chinese government on US polysilicon. The Company continues towork to re-gain access to the Chinesemarket for its solar grade polysilicon products produced in the United States. RECSilicon remains focused on identifying sales opportunities inmarkets outside of China. The Company curtailed the operation of its FBR production facility inMoses Lake,Washington during the second quarter of 2019. The timing and length of the shutdown are dependent on whether significant positive developments in solar grade polysiliconmarkets occur. Additional impairments and provisions would be required if the FBR facility is not restarted. In addition, general economic conditions and the effects of the ongoing tradewar between China and the United States is having an adverse impact onmarkets served by the semiconductor materials facility in Butte, Montana. In response, management and the board of directors has devised andwill implement a plan to reduce spending and activity levels to further conserve cash. On January 15, 2020 the Phase I economic and trade agreement was signed by the Government of the United States and the Government of China. The Company is evaluating the potential impacts of the Phase I trade agreement. The timing or outcome of any decision to resume operations at the FBR facility inMoses Lake remains uncertain (see note 33). PROPERTYTAXES RECSilicon has appealed property taxes in Grant County,Washington (USA).The 2012 assessment year is currently subject to an appeal pending before theWashington Court of Appeals. OnNovember 8, 2018 theThurston County Superior Court issued a ruling affirming the Board ofTax Appeals (BTA) revised valuation of RECSilicon’s property for assessment year 2012. On December 4, 2018 the Company appealed this ruling to theWashington Court of Appeals. The ruling does not affect amounts reflected in the Company’s financial statements and the Companywill not be required to pay the disputed tax amounts until all appeals are exhausted. In addition, REC Silicon has received a Notice of Change of Value fromGrant County for the 2013, 2014, and 2015 assessment years and has appealed these valuations. REC Silicon received Notice of Change of Value for years 2016-2019 assessment years and agreed with the valuation. The timing and outcome of these appeals is subject to uncertainty. For the years presented, there were no differences between expenses recognized and amounts claimed by Grant County. The total provision in the statement of financial position is USD 27.7 million at December 31, 2019 and USD 26.8million at December 31, 2018 and represents the Group’s liability should the assessments of value asserted by Grant County be upheld. Under relevant law and previous agreements, REC Silicon is required to pay only the undisputed amounts and a portion of the disputed amounts while the appeals are pending. Payments made in 2019 for 2018 property taxes totaled USD 1.9million and payments made in 2018 for 2017 property taxes totaled USD 2.8million and are not subject to appeal. INCOME TAXES The Company previously received notices of reassessment from the Norwegian Central Tax Office (CTO) regarding tax returns for tax years 2009 through 2011. The CTO questioned the deductibility of losses on loans and guarantees provided to subsidiaries and affiliates. The Company received a draft decision dated June 30, 2017 from the CTOwhich disallows losses of NOK 7.7 billion in total (at 28 percent the tax would be approximately NOK 2.2 billion). The Company expects these amounts to be adjusted for group contributions and carry back of tax losses, which would result in the recognition of approximately USD 26million in tax expense plus interest of approximately USD 4million. This range of potential outcomes remain broadly unchanged from disclosures previously made by the Company. The Company filed a response with supporting arguments and additional documentation in opposition to findings in the CTO’s draft decision. REC Silicon continues to believe that the losses are tax deductible and that the Company’s position will eventually prevail. The CTO is expected to issue an additional draft decision. The Company will have another opportunity to comment on the new draft decision prior to the issuance of a final decision. When a final decision is issued, any resulting tax is generally due two weeks after the decision. The Company expects to challenge any adverse final ruling through the appeals process and will attempt to defer any potential payment until a final resolution has been reached. The timing and amount of any potential outcome is subject to substantial uncertainty. 31