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Operating Assets, Liabilities, and Contingent Liabilities

(28) Contingent liabilities

Accounting and measurement policies
Contingent liabilities

To identify contingent liabilities from litigation and tax matters, the Group draws on the knowledge of the legal department and the tax department as well as the opinions of external consultants and attorneys.

The key factors in the identification of contingent liabilities are:

  • the validity of the arguments brought forward by the opposing party or the tax authority, and
  • the legal situation and current court rulings in comparable proceedings in the jurisdiction in question.

The amount of the contingent liability is based on the best-possible estimate, which in turn is based on the likelihood of possible outcomes of proceedings and on the applicable license rate in patent disputes.

Significant discretionary decisions and sources of estimation uncertainty
Contingent liabilities

The identification and the measurement of contingent liabilities are both subject to considerable uncertainty.

This applies with regard to assessing the likelihood of an outflow of resources as well as determining its amount.

Contingent liabilities in the amount of € 204 million (December 31, 2022 (adjusted): € 231 million) related almost exclusively to litigation and tax matters.

Contingent liabilities from litigation mainly related to obligations under labor law and tort law. The contingent liabilities from tax matters primarily related to the determination of earnings under tax law, customs regulations, and excise tax matters.

In addition, there were contingent liabilities from various legal disputes with Merck & Co., Inc., Rahway, NJ, United States (outside the United States and Canada: MSD), among other things due to breach of the coexistence agreement entered into between the two companies and/or trademark/name right infringement regarding the use of the designation “Merck”. In this context, Merck KGaA, Darmstadt, Germany, has sued MSD in various countries and has been sued by MSD in the United States. An outflow of resources – except costs for legal defense – was not deemed sufficiently probable as of the balance sheet date to justify the recognition of a provision. Since the contingent liability from these legal disputes could not be reliably quantified as of the balance sheet date, this matter was not included in the total figure for contingent liabilities.

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