Annual Report 2023

24. Contingencies, contingent assets and contingent liabilities

Accounting policies

Contingent assets are potential Group assets that result from past events, but whose recognition depends on the occurrence or not of one or more future events that are not under its control.

Disclosure is made in the notes when it becomes probable that future economic benefits will be received by the Group. It is recognised in the Consolidated Financial Statements when it becomes virtually certain to be received.

Contingent liabilities correspond to potential obligations as result of past events and whose recognition depends on the occurrence or not of one or more uncertain future events not wholly within the control of the Group. They may also represent present obligations as result of past events, which are not recognised in the Financial Statements because its payment is not probable, or it is not possible to obtain a reliable value estimation.

The Group discloses in the notes whenever the probability of future disbursement is not considered remote. It is recognised or a provision is set up when the payment of its value becomes probable, and it can be estimated with some degree of reliability.

Assets recognised in the Consolidated Financial Statements

  • Under non-current debtors (note 15), an amount of €51 million (€50 million in 2022) relates to tax liquidations claimed by the Tax Administration.

    The Board of Directors, supported by its lawyers and tax advisers, believes the Company has acted within the law and maintains the administrative and judicial claims filed against such settlements expecting their full recovery.

    In this context, the Group immediately demanded total reimbursement of the amounts paid, as well as indemnity interest at the legal rate for the period between the payment date and its effective restitution date.

    In 2012 one of the judicial proceedings was held to be well-grounded by the Court of Appeal (Tribunal Central Administrativo Sul), which ruled the cancellation of the referred liquidations and the payment of compensatory interests and of a compensation for the guarantees granted within the proceedings. The Group recognised the amount of compensatory interest due on this credit.

    In 2021, the Group was reimbursed in €15 million, relating to amounts paid in previous years and associated with the use of tax losses carried forward deferred in the scope of the aforementioned Judgment.

Contingent liabilities

Competition Authorities proceedings:
  • In Portugal, following search and seizure actions carried out in late 2016 and early 2017 in several entities operating in the food distribution sector, the Portuguese Competition Authority (AdC) determined the opening of several inquiries, in the scope of which it came to issue against suppliers and retailers, including the subsidiary Pingo Doce – Distribuição Alimentar, S.A. (Pingo Doce) ten statements of objections for alleged anti-competitive practices, consisting of price alignment for certain products.

    At the end of 2023, Pingo Doce had been notified of decisions issued by AdC regarding all of the above-mentioned proceedings, imposing fines on several retailers and their suppliers. In the case of Pingo Doce these decisions resulted in the imposition of fines in the amount around of €190 million.

    Pingo Doce totally disagrees with such decisions which it considers to be completely ungrounded. As such, the Company filed the respective appeals before the Competition, Regulation and Supervision Court (“Tribunal da Concorrência, Regulação e Supervisão”) in the first processes. Under the terms of the applicable law, Pingo Doce also requested the awarding of suspensive effect to the appeals, subject to providing a guarantee, to prevent the immediate payment of the fines. Based on the opinion of its legal counsels and economic advisors, the Company is fully convinced of the strength and merits of its position.
  • In Poland, the Company Jeronimo Martins Polska, S.A. (JMP) was notified, in 2019, by the Polish Office of Competition and Consumer Protection (UOKiK) on the opening of one investigation proceeding, regarding missing price labels on shelves and discrepancies between prices on the shelves and the ones indicated at the checkouts.

    In August 2020, UOKiK notified the JMP of the decision, concluding with the imposition of a fine of 115 million zloty (c. €25 million). JMP, disagreeing with the understanding and conclusion of this Authority, filed an appeal to the Court of Competition and Consumer Protection (CCCP). On 29 September 2022 the court in the first instance sustained the UOKiK decision and dismissed the appeal. Convinced of the merits of its defence and has factual and legal arguments to be used, JMP filed an appeal to the Second Instance Court. On 27 June 2023 this Court rejected the appeal presented by JMP, making the payment decision final, which was made in July 2023. Nevertheless, JMP sustaining its position, will file an extraordinary appeal to the Supreme Court.

    In December 2020, UOKiK notified JMP of the decision of applying a fine of 723 million zloty (c. €160 million), for the alleged abuse of bargaining power in commercial relations with suppliers, namely of fruits and vegetables. JMP understands that the decision lacks both legal and factual grounds and has already filed an appeal to the Court of Competition and Consumer Protection.

    Having always conducted transparent and fair negotiations, aiming to build long-term relationships that are essential for the sustainability of its supply chain and to serve the Polish consumers, the Company is fully convinced of the merits of its defence and has significant factual and legal arguments to be used in its defence.

    During the year 2020, JMP was notified by UOKiK on the opening of one proceeding related to the disclosure of country of origin of fruit and vegetable products at store level. On 22 April 2021 UOKiK notified JMP of the decision on the case, imposing a fine of 60 million zloty (c. €13 million). The mentioned decision is not final, so JMP, disagreeing with the understanding and conclusion of this Authority, filed an appeal before the CCCP. On 17 April 2023 the CCCP sustained UOKiK’s decision. JMP filed the appeal to the Court of Appeals.

    On 10 August 2022 the President of UOKiK initiated the proceedings regarding the promotional campaign ‘Biedronka’s Anti-inflation Shield’, having on 13 April 2023 issued a decision to impose a fine of 161 million zloty (c. €36 million). JMP filed an appeal to the CCCP.
Other tax and legal proceedings:
  • In 2023, a consumer protection association filed several collective actions against Pingo Doce in respect to damages arisen from an alleged discrepancy in prices between what is displayed on the shelf and what appears at the checkout counter in its supermarkets. The safeguarding of the consumer’s legitimate interests is always a priority for Pingo Doce, and therefore, convinced that there is no ground for these actions, the Company has contested the actions, which are still at a preliminary stage.
  • In addition to several disputes arising out of the ordinary course of the Group’s businesses, there are several legal proceedings also pending resolution, for which the Board of Directors, supported by the opinion of its lawyers and tax advisors, considers that there is enough ground for its appeal in court. The most significant issues (amounted higher than €5 million) are detailed below:
    1. The Portuguese Tax Authorities (PTA) have informed Recheio SGPS that it should restate the dividends received, amounting to €82 million, from its subsidiary in the Madeira Free Zone in the years 2000 to 2003, considering them as interest for tax purposes. According to the PTA the said income should be subject to Corporate Income Tax (CIT) as opposed to dividends received that are exempt. The PTA have issued additional assessments, amounting to €21 million, of which €20 million is still in dispute. In spite that both judicial claims were ruled in favour of the PTA, the Board of Directors maintains its convictions and claimed against them judicially. In one of the cases the Central Administrative Court has ruled in favour of Recheio SGPS, although the PTA has claimed against that decision;
    2. The PTA carried out some corrections to the CIT amount from Companies included in the perimeter of the Tax group headed by JMR SGPS, which led to additional assessments concerning 2002 to 2015, amounting to €81 million, of which an amount of €71 million is still in dispute. In the meantime, the Lisbon Tax Court has ruled partially in favour of the Group regarding the 2002 to 2007 and, also, 2014 assessments. The Group appealed to a higher court;
    3. The Portuguese Tax Authorities (PTA) carried out some corrections to the CIT from Companies included in the perimeter of the Tax Group headed by Recheio SGPS. With these corrections the total assessments concerning 2007 to 2014 amounted to €17 million, of which an amount of €16 million is still in dispute. The Lisbon Tax Court has already ruled in favour of Recheio SGPS regarding the 2008, 2009, 2010, 2011, 2013 and 2014 assessments. Up to this date, the PTA has appealed of all those decisions;
    4. The PTA has informed JMH of the non-acceptance of the deductibility of capital losses, in the amount of €25 million, related to 2007 financial year, with the liquidation of one Company and the sale of another, which generated a correction on the Company’s tax losses in the estimated tax amount of €7 million. Due to decisions favourable to JMH regarding corrections of losses from previous years, the amount currently in dispute is €5 million. In 2019, the Lisbon Tax Court ruled in favour of JMH. However, the PTA have appealed the said decision to a higher court;
    5. The PTA assessed, for the period from 2016 to 2019, JMR SGPS and JMH (as the head of the Tax Group in which Recheio SGPS is included), the amounts of €122 million and €30 million, respectively, related to the taxation in CIT of ¼ of the results generated in internal operations of the Tax Group, in each of these years. As explained in the 2018 Annual Report (and previous years), this assessment results from the application of the transitional rule included in the Portuguese State Budget of 2016 (and then in the next three budgets). Based on the assessment of our lawyers and fiscal advisors, we firmly believe that there are sufficient grounds to oppose the said rules;
    6. The PTA assessed JMR SGPS, regarding 2017, the amount of €13 million, regarding the restate of the dividends received in the year 2017, amounting to approximately €45 million, from one subsidiary in the Madeira Free Zone in 2017. In the opinion of PTA, these dividends should be treated as interest received, which is subject to CIT as opposed to the dividends that are exempt. In view of some specific technical aspects of this case and recent Court decisions (see paragraph a) above), the Board of Directors, supported by its lawyers and tax advisers, believes the Company has sufficient grounds for its defence;
    7. The PTA assessed JMR SGPS, for 2020, in the amount of €4.5 million and corrected JMH’s tax losses, in the amount of € 3.2 million, considering that the amortization of brands and, also in JMR’s, donations granted, were not CIT deductible, a decision contrary to the legislative changes. The Board of Directors, supported by the opinion of its lawyers and tax advisers, believes the Company has sufficient grounds for its defence;
    8. The Food and Veterinary Department (Direção-Geral de Alimentação e Veterinária) claimed from Pingo Doce, Recheio and Hussel an amount of €29 million, €3 million and €0.06 million, respectively, in respect of the Food Safety Tax (Taxa de Segurança Alimentar Mais – TSAM) assessed for the years 2012 to 2023. The values at stake have been challenged in Court, since it is understood that this tax is not due, namely on the grounds of the unconstitutional nature of the Statute that approved the TSAM. Despite the court having decided that the Food Safety Tax is not unconstitutional, the Companies maintain their understanding and presented the respective appeal to the Constitutional Court, that has upheld the decision. The Group filed a complaint with the European Commission considering that we are in the presence of illegal State aid. This complaint is still under appreciation. The companies of the Group continue to challenge the decisions, carrying out regular analysis of the risk and the likelihood of a favourable outcome in any of the processes and/or the complaint to the European Commission;
    9. The court trustee of the company ZM Kania has brought a lawsuit against JMP for the amount of 23 million zloty (€5 million). The claim is based on all the discounts that JMP collected from this supplier in the period 2016-2019 with grounds on the Unfair competition act (all granted rappels are argued as not constituting a price element) and on the Law on protection of competition and consumers. JMP considers that it has strong arguments to generally counter the amounts claimed.

Based on the opinion of its lawyers, the Companies carry out a risk assessment regarding the probability of the outcome of each case, setting up provisions that they deem necessary at any time to cover potential future disbursements, or proceeding with its payment (see note 20), when it considers that it is the best way to protect the Group’s interests. In order to protect its legitimate interests and not to harm its position in these disputes, it does not disclose the amounts that may have been provisioned.

Contingent assets

There are decisions taken by the competent courts, partially favourable to the Group’s interests, on some of the cases that were paid in 2016, and even though the Tax Authority has appealed to higher courts, the Board of Directors believes that the Group will obtain future repayments. However, according to our policy described above, the disclosure of any amounts related to contingent assets will be made when their receipt becomes quantifiable.

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