(27) Other provisions
Other provisions developed as follows:
€ million |
|
Litigation |
|
Restructuring |
|
Environmental protection |
|
Acceptance and |
|
Interest and penalties related to income taxes |
|
Other |
|
Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Jan. 1, 2022 |
|
97 |
|
126 |
|
153 |
|
77 |
|
94 |
|
100 |
|
647 |
Additions |
|
20 |
|
79 |
|
26 |
|
105 |
|
28 |
|
48 |
|
306 |
Utilizations |
|
-8 |
|
-59 |
|
-5 |
|
-31 |
|
-1 |
|
-29 |
|
-132 |
Release |
|
-27 |
|
-12 |
|
-2 |
|
-23 |
|
-34 |
|
-30 |
|
-127 |
Interest effect |
|
– |
|
– |
|
-25 |
|
– |
|
– |
|
– |
|
-25 |
Currency translation |
|
1 |
|
1 |
|
– |
|
– |
|
1 |
|
– |
|
3 |
Changes in scope of consolidation/other |
|
1 |
|
– |
|
– |
|
– |
|
– |
|
1 |
|
1 |
Dec. 31, 2022 |
|
85 |
|
134 |
|
148 |
|
127 |
|
88 |
|
91 |
|
672 |
thereof: current |
|
65 |
|
43 |
|
16 |
|
109 |
|
88 |
|
51 |
|
372 |
thereof: non-current |
|
19 |
|
91 |
|
132 |
|
18 |
|
– |
|
39 |
|
299 |
Accounting and measurement policies
Provisions for litigation
To assess a recognition obligation in relation to provisions for litigation and to quantify future outflows of resources, the Group draws on the knowledge of the legal department as well as outside counsel.
Assessing the need for recognizing provisions for litigation is based on the likelihood of possible outcomes for proceedings. In particular, the factors influencing this likelihood are:
- the validity of the arguments brought forward by the opposing party, and
- the legal situation and current court rulings in comparable proceedings in the jurisdiction in question.
The following factors are also relevant in measuring provisions for litigation:
- the duration of proceedings in pending legal disputes,
- the applicable license rate plus an expected infringement surcharge,
- the usual damages and fines for comparable legal disputes, and
- the discount factor to be used.
Provisions for restructuring
The Group uses formal restructuring plans to assess recognition obligation for provisions for restructuring projects and the amount of the expected outflow of resources.
Provisions for environmental protection
To assess a recognition obligation in relation to provisions for environmental protection and to quantify future outflows of resources, the Group draws on appraisals by independent external experts and the knowledge of in-house specialists.
The following are key parameters in calculating the present value of the future settlement amount of provisions for environmental protection:
- the future settlement date,
- the extent of environmental damage,
- the applicable remediation methods,
- the associated future costs, and
- the discount factor.
Provisions for acceptance and follow-on obligations
The assessment of the recognition obligation for provisions for acceptance and follow-on obligations and the quantification of future outflows of resources is based on internal project plans as well as on the assessment of the respective matters by in-house and external specialists.
The main parameters in determining the amount of the provision are:
- the ability to use or potential for modification of secured manufacturing capacities at third-party providers, particularly for pharmaceutical compounds,
- the number of affected patients and the expected duration of their continued treatment in clinical development programs,
- the expected date or period of the outflow of resources, and
- the expectations concerning future events influencing the obligations.
Provisions for interest and penalties related to income taxes
Objective assessments are performed to determine the need to recognize provisions for interest and penalties related to income taxes not covered by IAS 12.
Significant discretion and sources of estimation uncertainty
Provisions for litigation
Like the measurement of provisions, the assessment of a recognition obligation for provisions for litigation is to a particular extent subject to a degree of estimation uncertainty. The uncertainties relate, in particular, to the assessment of the likelihood and the amount of the outflow of resources.
Provisions for restructuring
Estimation uncertainty about the provisions for restructuring primarily relate to determining the amount of the expected outflow of resources. This is largely influenced by the assumptions made concerning the change in or termination of the employment relationships of the affected employees and the planned implementation date of the restructuring plan.
Provisions for environmental protection
The assessment of a recognition obligation and the measurement of the provisions for environmental protection are subject to discretionary decisions and estimation uncertainties to a particular degree.
The estimation uncertainties relate in particular to the assessment of the timing and likelihood of a future outflow of resources and assessment of the extent of necessary remediation measures and the related calculation of the amount of the liability.
Provisions for acceptance and follow-on obligations
Estimation uncertainty regarding the provisions for acceptance and follow-on obligations primarily relates to determining the amount of the expected outflow of resources.
Provisions for interest and penalties related to income taxes
Estimation uncertainty concerning the provisions for interest and penalties related to income taxes mainly relate to the interpretation of tax codes and the effects of amended case law.
Antitrust and other proceedings
The most important legal matters in the reporting period are detailed below.
Citalopram: In connection with the generics business that was divested in 2007, the Group was accused of breaching EU antitrust law through agreements entered into by its former subsidiary Generics (UK) Ltd., United Kingdom, relating to the antidepressant Citalopram patented by Lundbeck A/S, Denmark. The European Commission imposed a fine in June 2013. The Group filed a lawsuit against the Commission’s decision with the European Court (EC) in August 2013. The lawsuit was rejected in 2016. The Group subsequently filed an appeal against this decision with the European Court of Justice, which confirmed the first instance ruling in March 2021. Although the fine of € 18 million was paid in 2013, additional potential claims were considered to be probable. A provision in a mid-double-digit million euro amount was recognized for these proceedings as of December 31, 2022. A cash outflow within the next twelve months is considered possible.
Paroxetine: In the United Kingdom, the Group was subject to antitrust investigations by the British Competition and Market Authority in connection with the generics business that was divested in 2007. In March 2013, the authorities informed the Group of the assumption that a settlement agreement entered into in 2002 between Generics (UK) Ltd., United Kingdom, and several subsidiaries of GlaxoSmithKline plc, United Kingdom, in connection with the antidepressant drug paroxetine, violated British and European competition law and set a fine. They stated that the Group was liable as the then owner of Generics (UK) Ltd. and because it was involved in the negotiations for the settlement agreement. The investigations into Generics (UK) Ltd. started in 2011, without this being known to the Group. After the European Court of Justice confirmed in January 2020 that such settlement agreements can violate European competition law, the Competition Appeal Tribunal confirmed in May 2021 the low single-digit million euro fine that the Group paid in September 2021. British National Health Services subsequently asserted claims for damages on account of the anti-competitive settlement agreements in 2002. The Group and the National Health Service for England and Wales agreed on a settlement payment in December 2022. The payment was made in January 2023. The previous provision in a low double-digit million euro amount was reversed almost in full.
Restructuring
The restructuring provisions recognized as of December 31, 2022, primarily relate to obligations for workforce reduction measures in connection with communicated restructuring plans in all business sectors. In particular, this resulted from programs for the reorganization of global research and development activities as well as the sales structures in the Healthcare business sector.
Outflows of resources under the restructuring provisions are expected within the next five years.
Environmental protection
Provisions for environmental protection resulted in particular from obligations for soil remediation and groundwater protection in connection with the crop protection business in Germany and Latin America that was discontinued in 1987.
Acceptance and follow-on obligations
Provisions for acceptance and follow-on obligations primarily related to costs in connection with discontinued development projects in the Healthcare business sector as well as obligation surpluses from onerous contracts. The additions and utilizations were mainly due to the discontinuation of development projects under the strategic alliance with GlaxoSmithKline, United Kingdom (see Note (7) “Collaboration and licensing agreements”), and relate to the winding up of clinical trials.
Interest and penalties related to income taxes
Provisions for interest and penalties related to income taxes mainly comprised interest payables associated with or resulting from tax payables.
Miscellaneous other provisions
Miscellaneous other provisions included provisions for asset retirement obligations, for other tax risks not constituting income tax in accordance with IAS 12, for warranty obligations, and for remaining risks in connection with the disposal of the Consumer Health business.