Providing a clear explanation of our tax contribution is of the utmost importance

Inspections

Periods open for review by the Tax Authorities

In Spain, at the end of fiscal year 2024, the Tax Consolidation Group to which the Endesa Group belongs (no. 572/10) has the years 2006, 2019 and subsequent open for inspection for Corporation Tax.

Meanwhile, the Tax Consolidation Group No. 21/02, whose parent company is Empresa de Alumbrado Eléctrico de Ceuta, S.A., has fiscal years 2020 to 2023 open for inspection. The remaining subsidiaries of Endesa have fiscal years 2020 and onwards open for inspection regarding Corporate Tax.

Additionally, Endesa and most of its controlled subsidiaries have fiscal years 2020 and onwards open for review for other applicable taxes.

Beyond Spain, Endesa Group’s branches and controlled subsidiaries of generally have fiscal years 2021 and following open for review (in the case of Portugal), 2022 and following (in the case of France), 2021 and following (in the case of the Netherlands), and 2021 and following (in the case of Germany).

Ongoing Inspections

In Spain, in early 2025, there are approximately 700 ongoing inspection processes initiated by the State, Autonomous, and Local Administrations, many of which correspond to Special Taxes, Sectoral Taxes, and Local Taxes such as the Tax on Economic Activities (IAE), the Tax on Constructions, Installations, and Works (ICIO), and the Public Highway Occupation Fee (TOVP).

The most significant process is the General Inspection concerning 13 Group companies, which affects fiscal years 2019 to 2022 for Corporation Tax and 2020 to 2022 for Value Added Tax (VAT) and Withholdings. The process began in October 2023 and was extended in December 2024 to include the 2019 VAT for four companies, and it is expected to conclude in the first half of 2025.

Closed Inspections during the year 2024

In Spain, during 2024, 335 inspection processes have been closed with the following outcomes:

• A total of five processes ended without any adjustments, mainly related to local tax processes.
• There were 92 processes which concluded with conformity reports, which involved:
  • A refund of €5.3 million for the tax on the production of spent nuclear fuel and radioactive waste from nuclear power generation (hereinafter referred to as the Nuclear Tax). This refund was based on the Inspection's acceptance of the TEAC doctrine, as outlined in the resolution of 22 February 2022. This resolution adopts a purposeful interpretation of the Third Transitional Provision of Law 15/2012, which establishes a specific calculation of the taxable base for the tax periods in which the fuel permanently remove from the reactor contained fuel elements introduced into the reactor core prior to 1 January 2013.
  • A payment of €0.7 million, derived from certain minor adjustments in the ICIO, the Hydrocarbon Tax, and the Public Highway Occupation Fee (TOVP).
• There were 18 processes concluded with reports in disagreement, which involved:
  • A refund of €35.43 million, to be issued in January 2025, from the Temporary Energy Tax paid in 2023. This refund follows the Inspection's acceptance of the exclusion of certain revenues of the marketer and generator from the taxable base, as these revenues were derived from regulated activities, applying a purposeful interpretation of the regulation. Despite accepting the refund, the report has been signed in disagreement, as the legality of the regulation is still under dispute in the courts.
  • Non-acceptance of the refund request for the tax on the production of spent nuclear fuel, based on the TEAC resolution of 22 February 2022. The rejection pertains to certain cycles where the Inspection believes that Endesa's right to request the refund has expired or that procedural preclusion applies, thereby preventing the refund. We disagree with the Inspection's position on certain cycles of the Ascó and Vandellós power plants. Endesa will appeal the denial in court, seeking the right to a refund amounting to €141 million (€101 million plus €40 million in interest).
  • A payment of €0.7 million results from certain minor regularisations in the ICIO, the Hydrocarbon Tax, the TOVP, the Tax on Economic Activities (IAE), and the AJD (Tax on Documented Legal Acts).
• Abroad, during the year 2024, there have been no inspection processes.

Litigation

Most tax-related litigation processes within the Endesa Group arise from refund requests for undue payments, where the Endesa Group pays the relevant taxes in a timely manner but subsequently requests a refund of what has been paid. This refund is generally rejected by the Administration, leading the Endesa Group to challenge the denial, thus initiating a judicial process.

This typically affects cases where the Endesa Group believes that the applicable regulation does not conform to the Spanish Constitution or European regulations, as well as cases where they do not agree with the interpretative criteria followed by the Administration.  By following this legal strategy, the Endesa Group avoids generating contingencies in its accounts while still maintaining its legitimate interest in defending its position in court.

Among the most relevant processes are the following:

A) Active litigation

• Temporary Energy Tax (GTE): Following the approval of this tax under Law 7/2024, of 20 December, Endesa filed a contentious-administrative appeal before the National Court against Order HFP/94/2023, of 2 February, which approved the tax models. Having been accepted for processing, the procedure is currently ongoing. The GTE raises many doubts regarding its compatibility with European Union law, the Spanish Constitution, and certain principles of legality. Dissatisfied with the self-assessments submitted for the fiscal years 2023 and 2024, they have also been self-challenged for the same reason.
• Tax on the Value of Electricity Production: In 2023, the Supreme Court concluded that certain compensation items must be included in the taxable base, which the electricity companies had claimeed should be included. However, this ruling did not address some of the items that Endesa had been appealing, so the litigation continues regarding the remaining items.
• Nuclear Tax: As a result of the Settlement Agreements in which the Inspection rejected Endesa's refund requests, a new litigation procedure has been initiated in the economic-administrative sphere. The discussion centres on Endesa's request to modify the taxable base of the Nuclear Fuel Tax, arguing that, for the purpose of calculating the retroactivity coefficient established in the Third Transitional Provision of the regulation, the criterion set out in the resolution of the Central Economic-Administrative Court (TEAC) of 22 February 2022 applies.

• Regional Environmental Taxes:
  • Tax on installations that impact the environment in Catalonia: This tax has been challenged, not only for its purported environmental nature but also because the 33% increase in the tax rate made since 6 April 2022 was implemented through a Decree-Law, which was not the appropriate regulatory instrument. Recently, the High Court of Justice of Catalonia raised a question of unconstitutionality that has been admitted by the Constitutional Court.
  • Air Pollution Tax in Galicia: The Supreme Court has determined that there is a cassational interest regarding the appeals filed by Endesa against the dismissive rulings of the High Court of Justice of Galicia, which dismissed claims challenging the environmental nature of the tax.
  • Other processes against regional taxes of alleged environmental nature (taxes on emissions, taxes on waste, certain hydraulic levies, taxes on installations that impact the environment, etc.), where appeals are pending resolution at various levels.
• Special Taxes that levy consumption of fuels for electricity production, such as the Hydrocarbon Tax and the Coal Tax.
  • Hydrocarbon Tax (ISH): Endesa is involved in litigation before the National Court regarding the compliance with European Union law of the ISH paid on natural gas used to produce electricity or for the cogeneration of electricity and heat during the years 2013-2018.  Endesa believes that there is no environmental purpose that allows Spain to depart from the exemption established by European regulation for these cases. The Supreme Court (TS) has ruled favourably in litigations initiated by other companies, which could have a direct impact on our litigations. The State Attorney's Office has appealed the Supreme Court rulings, which may delay the final resolution.
  • Coal Tax Endesa is involved in litigation where it disputes the compatibility of the Coal Tax with European law. In 2024, it received an unfavourable ruling from the National Court following a judgement from the Court of Justice of the European Union. Endesa has appealed to the Supreme Court, arguing that the Supreme Court rulings mentioned above regarding the ISH should be taken into account in this litigation. It remains to be seen whether the appeal will be accepted.
• Civil Guard Fee at Nuclear Power Plants: Since 2019, operators of Nuclear Power Plants have been required to pay a fee for services provided by the Civil Guard in monitoring these facilities due to their importance for national security. Endesa disputed this fee for the Ascó and Vandellós plants, arguing, among other reasons, that national security is an exclusive responsibility of the State, which should bear the associated costs. After our appeal was dismissed by the High Court of Justice of Madrid, the Supreme Court has accepted the appeal for formal processing against that ruling.

Corporation Tax:

• Unconstitutionality of RDL 2/2016: In February 2025, the Constitutional Court admitted two questions of unconstitutionality raised by the High Court of Justice of Valencia regarding the legality of RDL 2/2016 (instalment payments of Corporate Tax) following the General State Budget Law of 2018. The Court must decide on formal issues (the validity of using the General State Budget Law to validate a regulation like this) and substantive issues (whether the minimum payment is compatible with the principle of economic capacity).  Additionally, the Supreme Court has also admitted a similar appeal for cassation related to this matter. Endesa has contested its assessments while awaiting the outcome of the process.
• Unconstitutionality of RDL 3/2016: In 2024, the Constitutional Court declared the unconstitutionality of certain measures approved by RDL 3/2016 (affecting the reversal of impairments and the limitation on the use of tax credits). As a consequence of this, for companies that had contested the regulation, such as Endesa, the Tax Administration must re-calculate the Corporate Tax for the fiscal years 2016 to 2022 as if RDL 3/2016 had not been in force, refunding any amounts overpaid during those years, if applicable. Specifically, the recalculation for the years 2016 to 2018 is expected to occur in the first half of 2025, following a 2024 resolution from the Central Economic-Administrative Court. This resolution confirmed the non-application of RDL 3/2016 to those periods. The recalculation related to 2019 to 2022 is also expected to take place during this period, as inspection reports for these years are currently under review by the Inspection.
• Goodwill Aid: While the amounts involved for Endesa are not significant, in June 2019 inspection actions were initiated in relation to the recovery procedure for state aid affected by EU Decision 2015/314. This decision pertains to cases where the financial goodwill for the acquisition of 'indirect' foreign holdings was fiscally amortised. Following the receipt of the Settlement Agreement in February 2021, it was challenged before the Central Economic-Administrative Court, and is pending resolution. During the appeal, the ruling of the General Court of the EU (TGUE) dated 27 September 2023 was highlighted. This ruling annulled Commission Decision (EU) 2015/314 of 15 October 2014, regarding state aid SA.35550 (13/C) (ex 13/NN) (ex 12/CP), which could mean that the regularisations carried out may be declared inappropriate.  The TEAC subsequently decided to suspend the resolution pending the outcome of appeals for cassation filed against the TGUE ruling in the European Court of Justice.

All these processes, in the event of loss, would not have a negative impact either in terms of cash flow or results for the Endesa Group, as the taxes have been settled and paid. In the event of success, they would result in a favourable outcome.

B) Passive litigation

Regarding the other processes that could negatively impact Endesa, most involve reports initiated by Inspection Bodies. These reports have been signed in disagreement by the Endesa Group, have not been paid, and remain appropriately suspended during the litigation process.

In any litigation process of this nature, the likelihood of loss in the final court instance is assessed.  Processes where the probabilities of losing are considered greater than those of winning are accounted for by providing for the contingent amount in dispute.

The following are highlighted as the most relevant:

• Reports initiated in 2017 against ENEL Green Power España, S.L.U. (EGPE) concerning the Corporate Tax for the fiscal years 2010 to 2013: This litigation is pending a ruling from the National Court regarding the reports where the Inspection rejected the application of the tax neutrality regime for the EGPE-EUFER merger. The contingent amount associated with the potential loss from this merger litigation has been recalculated based on the criteria shared by the Tax Inspection during the ongoing inspection procedures concerning the Enel Iberia Group, S.L.U. This criterion considers the potential tax recoveries from the assessed amount in the report in dispute for the years following 2011, implying that the net potential contingency from these recoveries, as of 31 December 2024, amounts to €33 million. A guarantee is available to ensure debt suspension.
• Reports initiated in 2018 against Endesa concerning Corporate Tax for the fiscal years 2011 to 2014: The points under discussion mainly arise from differences in criteria regarding the deductibility of expenses for the dismantling of power plants, certain financial expenses, and certain losses derived from the transfer of holdings during the inspected period. The process is pending a ruling from the National Court. The amounts in dispute total €51 million.
• Reports initiated in 2018 against Endesa concerning Value Added Tax (VAT) for the fiscal years 2012 to 2014: The main issues in dispute relate to the deductibility of VAT under the application of the pro-rata rule. The case is under appeal in the National Court, which dismissed the precautionary measure requested, resulting in the payment of the debt amounting to €7 million. In the event of success, a refund would be obtained.
• Reports initiated in 2021 against Endesa concerning Corporate Tax for the fiscal years 2015 to 2018: In 2024, the Central Economic-Administrative Court ruled partially in favour regarding the deductibility of remuneration expenses for directors, the criteria for the year of income recognition for refunds of unconstitutional taxes, and the unconstitutionality of certain measures approved by RDL 3/2016. The topics still under discussion in the National Court mainly involve the difference in criteria regarding the deductibility of certain financial expenses and the eligibility of certain deductions for Research, Development, and Technological Innovation. The amounts in dispute total €46 million.
• Reports initiated in 2021 against Endesa concerning Value Added Tax (VAT) for the fiscal years 2015 to 2018: The Settlement Agreements were appealed before the Central Economic-Administrative Court, whose ruling, in October 2024, was partially favourable. The appeal will continue before the National Court for the part not ruled in favour, primarily related to the pro-rata issue. The amounts in dispute total €2 million.
• Reports initiated in 2021 against Endesa regarding Withholdings on account of Personal Income Tax for the fiscal years 2015 to 2018: The appeal is currently with the National Court and pertains to the withholdings on in-kind compensation related to the provision of vehicles for employee use. The amounts in dispute total €2 million.
• Reports initiated by various municipalities regarding the Public Highway Occupation Fee: There are ongoing litigations pending resolution, originating from certain municipalities' demands for the fee in its general form (fee for elements), which Endesa believes is incompatible with the special form that taxes 1.5% of the revenue of marketing and distribution companies.
• Regarding the demand for the fee in its general form (fee for elements), Endesa additionally appeals the assessments when the municipality does not distinguish between the use and occupation of public land and when reasonable criteria are not applied in valuing the utility of such use or occupation.
• Lastly, concerning the inclusion, by municipalities, of Revenue from value-added services and fees with specific allocations for the determination of the taxable base, Endesa has contested these assessments. In February 2023, the Supreme Court resolved the appeals for cassation filed by Endesa, stating that value-added services should not be included in the taxable base for the Public Highway Occupation Fee. Consequently, the ongoing litigations continue in order to apply this jurisprudence.
• The amounts in dispute total €4 million. Furthermore, refunds amounting to €9 million are being requested.

Transactions between Group Companies

The transactions between related parties conducted by ENDESA Group companies are aligned with the arm's length principle established in the OECD Guidelines, the EU Joint Transfer Pricing Forum, and the provisions set forth in the Corporate Tax Law.

In accordance with the applicable regulations and recommendations, the pricing methodology to verify compliance with the arm’s length principle must be based on the facts and circumstances of each transaction to ensure that it was conducted under terms that independent parties would have agreed under normal market conditions.

In this regard, if it is possible to identify transactions with comparable characteristics in the market (e.g., indices, public markets, contracts with third parties), the Comparable Uncontrolled Price (CUP) method is applied, as it is the most direct and reliable method to implement the arm's length principle. When market comparables are not available, indirect methods such as the Cost Plus Method (CPLM) are applied, which are validated by applying the Transactional Net Margin Method (TNMM).

When the circumstances of the transactions warrant it, the ENDESA Group promotes the signing of Advance Pricing Agreements (APAs) with tax authorities to define the methodology to be applied.

Throughout 2024, the tax impacts derived from significant related party transactions relevant for tax purposes in Spain have been analysed, along with those that, according to the Related Party Regulations, must be approved by Endesa's Board of Directors. This year, 29 reports on fairness and reasonableness (including their tax component) have been obtained from prestigious firms (EY, PwC, and Deloitte) to support transactions or actions submitted for approval by the Board of Directors regarding Related Party Transactions.