O Q,
Notes to the Consolidated Financial Statements (continued)
9.3 Contingencies
Tax
Other contingencies
Guarantees
Guarantees
Introduction Report of the Executive Board Report of the Supervisory Board
Accounting estimates
In determining the likelihood and timing of potential cash out flows, HEINEKEN needs to make estimates.
For claims, litigation and tax provisions HEINEKEN bases its assessment on internal and external legal
assistance and established precedents. For large restructurings, management assesses the timing of the
costs to be incurred, which influences the classification as current or non-current liabilities.
Accounting policies
A provision is a liability of uncertain timing or amount. A provision is recognised when HEINEKEN has a
present legal or constructive obligation as a result of past events that can be estimated reliably, and it is
probable 50%) that an outflow of economic benefits will be required to settle the obligation. In case
of accounting for business combinations, provisions are also recognised when the likelihood is less than
probable, but more than remote 5%).
Provisions are measured at the present value of the expenditures expected to be required to settle the
obligation, using a pre-tax rate that reflects the time value of money and the risks specific to the obligation.
The increase in the provision due to passage of time is recognised as part of net finance expenses.
Restructuring
A provision for restructuring is recognised when HEINEKEN has approved a detailed and formal
restructuring plan, and the restructuring has either commenced or has been announced publicly.
Future operating losses are not provided for. The provision includes the benefit commitments in connection
with early retirement and redundancy schemes.
Onerous contracts
A provision for onerous contracts is recognised when the expected benefits to be received by HEINEKEN are
lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at
the present value of the lower of the expected cost of terminating the contract, and the expected net cost
of continuing with the contract. The latter takes into consideration any reasonably obtainable sub-leases
for onerous lease contracts. Before a provision is established, HEINEKEN recognises any impairment loss on
the assets associated with that contract.
HEINEKEN's contingencies are mainly in the area of tax, civil cases (part of other contingencies)
and guarantees.
The tax contingencies mainly relate to tax positions in Latin America and include a large number of cases
with a risk assessment lower than probable but possible. Assessing the amount of tax contingencies is highly
judgemental, and the timing of possible outflows is uncertain. The best estimate of tax related contingent
liabilities is €937 million (2017: €897 million), out of which €171 million (2017: €170 million) qualifies for
Financial Statements
Heineken N.V. Annual Report 201819
Sustainabil ity Review Other Information
indemnification. For several other tax contingencies that were part of acquisitions, an amount of €369 million
(2017: €382 million) has been recognised as provisions and other non current liabilities in the balance sheet
(refer to note 9.2).
The other contingencies relate to civil cases in Brazil. Management's best estimate of the financial effect for
these cases is €64 million (2017: €57 million). For the other contingencies that were part of acquisitions, an
amount of €31 million (2017: €49 million) has been recognised as provisions in the balance sheet (refer to
note 9.2).
In millions of
Total 2018
Less than
1 year
1-5 years
More than
5 years
Total 2017
Guarantees to
banks for loans
(to third parties)
325
46
268
11
307
Other guarantees
959
472
213
274
978
1,284
518
481
285
1,285
Guarantees to banks for loans relate to loans and advances to customers, which are given to external
parties in the ordinary course of business of HEINEKEN. HEINEKEN provides guarantees to the banks
to cover the risk related to these loans.
Accounting estimates and judgements
HEINEKEN operates in a high number of jurisdictions, and is subject to a wide variety of taxes per
jurisdiction. Tax legislation can be highly complex and subject to interpretation. As a result, HEINEKEN
is required to exercise significant judgement in the recognition of taxes payable and determination of
tax contingencies.
Also for the other contingencies, HEINEKEN is required to exercise significant judgement to determine
whether the risk of loss is possible but not probable. Contingencies involve inherent uncertainties including,
but not limited to, court rulings, negotiations between affected parties and governmental actions.
Accounting policies
A contingent liability is a liability of uncertain timing and amount. Contingencies are not recognised
in the balance sheet because the existence can only be confirmed by occurrence or non-occurrence
of one or more uncertain future events not wholly within the control of HEINEKEN or because the risk
of loss is estimated to be possible (>5%) but not probable (<50%) or because the amount cannot be
measured reliably
