Fiat Chrysler Automobiles (FCA) has challenged a claim by Italy’s tax officials over the valuing of its U.S. Chrysler business that could leave it with an unwanted tax bill just days prior to an expected key merger agreement with Peugeot owner PSA.
On Wednesday, a source knowledgeable with the matter stated the Italian tax agency believed Fiat Chrysler (FCA) had undervalued the value of its U.S. business, after its phased acquisition of Chrysler by 5.1 billion euros.
“We strongly disagree with this preliminary report,” stated an FCA spokesperson.
The tax audit comes at a delicate time for the automaker which is finalizing discussions with PSA, the maker of Peugeot and Citroen, over a scheduled $50 billion merger to form the world’s fourth-largest automaker.
A source close to PSA stated the details were public and came as no surprise for the French automaker.
The tax audit is “another complication” in the form of a binding merger agreement with PSA, however, one but which FCA can manage, an expert 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 stated.
Last month competitor General Motors submitted a racketeering lawsuit against FCA, accusing it of bribing union officials in the U.S. over many years to corrupt the bargaining process.
FCA has turned down these allegations as “groundless”.
The Italian tax authority audit, which is associated with the transactions dating back to 2014, could result in FCA having to pay back taxes for $1.5 billion, the source stated.
“We are sure that we will successfully make the case for a material reduction in the assessment,” the FCA spokesperson stated.