(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 assessment to identify 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 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 were composed as follows:
€ million |
|
Dec. 31, 2020 |
|
Dec. 31, 2019 |
|---|---|---|---|---|
Contingent liabilities from litigation and tax matters |
|
87 |
|
128 |
Other contingent liabilities |
|
– |
|
1 |
Contingent liabilities from litigation mainly related to obligations under labor law and tort law. In addition to exchange rate effects, the decline compared with the previous year is primarily due to changes in estimates of potential civil law obligations. The Group now believes it is more likely that a fine imposed in legal proceedings under antitrust law will ultimately be confirmed in court. The assertion of additional claims by third parties is therefore expected. These potential claims, which were previously reported as contingent liabilities, are now included in the measurement of the provision for the corresponding proceedings.
In addition, there are contingent liabilities from various legal disputes with Merck & Co., Inc., United States, of the United States (outside the United States and Canada: MSD), among other things due to breach of the co-existence agreement entered into between the two companies and/or trademark/name right infringement regarding the use of the designation “Merck”. In this context, the Group 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 considered in the table presented above.
Contingent liabilities from tax matters primarily related to the determination of earnings under tax law, customs regulations, and excise tax matters.