FCA facing $1.5 billion tax demand from Italian tax authorities

Fiat Chrysler Automobiles (FCA) has decided it will appeal Italy’s tax authority statement which says that the carmaker had underestimated the value of its U.S. business after it bought Chrysler.

As per a source close to the matter at hand, the Italian tax agency believed FCA had underestimated its business in the United States by 5.1 billion euros following its phased acquisition of Chrysler.

“We strongly disagree with this preliminary report,” said FCA’s spokesperson said on Thursday.

The tax audit comes at a time when FCA is close to finalizing talks with PSA over a planned $50 billion merger which will create the fourth-largest automaker in the world.

The tax audit traces back to transactions dating back to 2014, which could potentially see FCA having to cough up taxes to the tune of $1.5 billion, said the source.

“We are confident we will successfully make the case for a material reduction in the assessment,” said FCA’s spokesperson.

In its third-quarter report in October, FCA had said Italy’s inland revenue had issued the company with a final audit report in October this year. 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,” said FCA’s spokesman on Thursday.

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