O O Qs
Notes to the Consolidated Financial Statements (continued)
9.3 Contingencies
Tax
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. 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.
Financial Statements
Sustainability Review
Heineken N.V. Annual Report 2019
Other Information
The best estimate of tax related contingent liabilities is €957 million (2018: €937 million), out of which
€171 million (2018: €171 million) qualifies for indemnification. For several tax contingencies that were part
of acquisitions, an amount of €306 million (2018: €369 million) has been recognised as provisions and other
non-current liabilities in the balance sheet (refer to note 9.2).
Other contingencies
The other contingencies relate to civil cases in Brazil. Management's best estimate of the financial effect for
these cases is €39 million (2018: €64 million). For the other contingencies that were part of acquisitions, an
amount of €23 million (2018: €31 million) has been recognised as provisions in the balance sheet (refer to
note 9.2).
Guarantees
In millions of
Total 2019
Less than
1 year
1-5 years
More than
5 years
Total 2018
Guarantees to banks for
loans (to third parties)
332
47
280
5
325
Other guarantees
1,019
330
378
311
959
Guarantees
1,351
377
658
316
1,284
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.
