Chrysler 2014 Annual Report Download - page 33

2014 | ANNUAL REPORT 31
The existence of a permanent establishment in Italy for us after the Merger is a question of fact based on all the
circumstances.
Whether we have maintained a permanent establishment in Italy after the Merger, or an Italian P.E., is largely a question of
fact based on all the circumstances. We believe that, on the understanding that we should be a U.K.-resident company
under the Italy-U.K. tax treaty, we are likely to be treated as maintaining an Italian P.E. because we have maintained and
intend to continue to maintain sufficient employees, facilities and activities in Italy to qualify as maintaining an Italian P.E.
Should this be the case (i) the embedded gains on our assets connected with the Italian P.E. cannot be taxed as a result
of the Merger; (ii) our tax-deferred reserves cannot be taxed, inasmuch as they have been recorded in the Italian P.E.’s
financial accounts; and (iii) the Italian fiscal unit that was headed by Fiat before the Merger, or Fiscal Unit, continues with
respect to our Italian subsidiaries whose shareholdings are part of the Italian P.E.’s net worth.
According to Article 124(5) of the CTA, a mandatory ruling request should be submitted to the Italian tax authorities,
in order to ensure the continuity, via the Italian P.E., of the Fiscal Unit that was previously in place between Fiat and its
Italian subsidiaries. We filed a ruling request with the Italian tax authorities in respect of the continuation of the Fiscal
Unit via the Italian P.E. on April 16, 2014. The Italian tax authorities issued the ruling on December 10, 2014, or the
Ruling, confirming that the Fiscal Unit may continue via the Italian P.E. However, the Ruling is an interpretative ruling.
It is not an assessment of a certain set of facts and circumstances. Therefore, even though the Ruling confirms that
the Fiscal Unit may continue via the Italian P.E., this does not rule out that the Italian tax authorities may in the future
verify whether we actually have a P.E. in Italy and potentially challenge the existence of such P.E. Because the analysis
is highly factual, there can be no assurance regarding our maintenance of an Italian P.E. after the Merger.
Risks Related to Our Indebtedness
We have significant outstanding indebtedness, which may limit our ability to obtain additional funding on competitive
terms and limit our financial and operating flexibility.
The extent of our indebtedness could have important consequences on our operations and financial results, including:
we may not be able to secure additional funds for working capital, capital expenditures, debt service requirements
or general corporate purposes;
we may need to use a portion of our projected future cash flow from operations to pay principal and interest on our
indebtedness, which may reduce the amount of funds available to us for other purposes;
we may be more financially leveraged than some of our competitors, which may put us at a competitive
disadvantage; and
we may not be able to adjust rapidly to changing market conditions, which may make us more vulnerable to a
downturn in general economic conditions or our business.
These risks may be exacerbated by volatility in the financial markets, particularly those resulting from perceived strains
on the finances and creditworthiness of several governments and financial institutions, particularly in the Eurozone.
Even after the January 2014 acquisition of the approximately 41.5 percent interest in FCA US that we did not
already own, FCA US continues to manage financial matters, including funding and cash management, separately.
Additionally, we have not provided guarantees or security or undertaken any other similar commitment in relation to
any financial obligation of FCA US, nor do we have any commitment to provide funding to FCA US in the future.
Furthermore, certain of our bonds include covenants that may be affected by FCA US’s circumstances. In particular,
these bonds include cross-default clauses which may accelerate the relevant issuer’s obligation to repay its bonds
in the event that FCA US fails to pay certain debt obligations on maturity or is otherwise subject to an acceleration in
the maturity of any of those obligations. Therefore, these cross-default provisions could require early repayment of
those bonds in the event FCA US’s debt obligations are accelerated or are not repaid at maturity. There can be no
assurance that the obligation to accelerate the repayment by FCA US of its debts will not arise or that it will be able to
pay its debt obligations when due at maturity.
In addition, one of our existing revolving credit facilities, expiring in July 2016, provides some limits on our ability to
provide financial support to FCA US.