23. 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 14), an amount of €42 million (€51 million in 2023) relates to tax liquidations claimed by the Tax Administration.
  
  The Management, 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 2024, the Group was reimbursed in €10 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 subsidiary JMP was notified in 2020 by the Polish Office of Competition and Consumer Protection (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 złoty (c.€13 million). Disagreeing with the understanding and conclusion of this Authority, JMP filed an appeal before the Court of Competition and Consumer Protection (CCCP) that, on 17 April 2023 sustained UOKiK’s decision. JMP filed the appeal to the Court of Appeal. On 28 March 2024 this Court also dismissed JMP’s appeal, and the company paid the fine in April 2024. Convinced of the legal and factual grounds of its position, JMP filed an extraordinary appeal to the Supreme Court, and will carry out a regular analysis of the probability of a favourable outcome, and the disclosure of any values ​​relating to contingent assets will be made when their receipt becomes quantifiable.
  
  In December 2020, UOKiK notified JMP of the decision of applying a fine of 723 million złoty (c.€169 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, therefore, challenged the decision before the CCCP. On 17 October 2024, CCCP issued a ruling, upholding UOKiK’s decision in 7 of the 214 cases presented and, reducing the fine to 506 million złoty (c.€118 million). On 24 December 2024, JMP filed an appeal from the CCCP´s ruling to the Court of Appeal.
  
  JMP reiterates that it has always engaged in transparent and fair negotiations, aiming to build long-term relationships essential for its supply chain’s sustainability and to serve consumers in Poland. During the trial, factual arguments (including testimonies from the suppliers in question) and legal arguments were presented, demonstrating the merits of its defence. JMP believes this should have led to a complete acquittal rather than a partial one.
  
  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 złoty (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 Management, 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 Management 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 2014 assessments, which, having been only partially favourable to the Group, have already been challenged at a higher court;
  3. The 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. In 2024 the Central Administrative Court ruled in favour of Recheio, regarding the year 2010 and the Supreme Administrative Court in favour of the PTA, regarding 2013, therefore, regarding the latter, Recheio has already filed an appeal;
  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, regarding 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. In 2024, the Central Administrative Court ruled in favour of JMH regarding the total amount, closing the process;
  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). The Management, supported by its lawyers and tax advisers, believes that the company is right. As such, appeals have already been filed to oppose the said assessments;
  6. The PTA assessed JMR SGPS, regarding 2017, the amount of €13 million, regarding the restate of the dividends received in that year, amounting to approximately €45 million, from one subsidiary in the Madeira Free Zone. 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 Management, supported by its lawyers and tax advisers, believes the Company has sufficient grounds for its defence;
  7. The PTA notified JMR SGPS, for 2020 and 2021, of the settlement in the amount of €7.5 million and corrected JMH’s tax losses concerning 2020, 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 Management, supported by the opinion of its lawyers and tax advisers, believes the Company has sufficient grounds for its defence;
  8. The PTA carried out some corrections of VAT rates applied to certain goods sold by some Group Companies. With these corrections the total amount of assessments up to 2022 in Pingo Doce (Feira Nova) and Recheio amounted to € 6.4 million. The Management, supported by the opinion of its lawyers and tax advisers, believes the Company has sufficient grounds for its defence and has been appealing against those assessments;
  9. Since 2012, the Food and Veterinary Department (Direção-Geral de Alimentação e Veterinária – DGAV) claimed from Pingo Doce, Recheio and Hussel, the payment of the Food Safety Tax (Taxa de Segurança Alimentar Mais – TSAM). The values at stake have been and are challenged in Court, since it is understood that this tax is not due, whether for reasons of constitutionality of the legislation that created them, or for other reasons. Despite the court having decided that the Food Safety Tax is not unconstitutional, the Companies of the Group maintain their understanding and presented the respective appeal to the Constitutional Court, that has upheld the decision, and therefore continue to appeal such decisions. The Group has filed a complaint with the European Commission, as it believes that we are also dealing with illegal State aid. This complaint is still under consideration. At the end of 2024, the Companies of the Group decided to pay the invoices relating to these fees, and also made the payment of the amounts that were being executed. However, the Group’s companies continue to challenge the fee and, therefore, seek in court the return of those amounts, plus the respective interest. It will carry out a regular analysis of the probability of a favourable outcome, and the disclosure of any values ​​relating to contingent assets will be made when their receipt becomes quantifiable.
  10. The court trustee of the company ZM Kania has brought a lawsuit against JMP for the amount of 23 million złoty (c.€5 million). The claim disputes 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. On 29 February 2024, the Court dismissed all trustee’s claims against JMP. The ZM Kania trustee has meanwhile filed an appeal to the second-instance Court. On 13 September 2024, JMP submitted a reply to that appeal;
  11. Polenergia Obrót S.A. has brought a lawsuit against JMP for the amount of 41 million złoty (c.€9.5 million). The dispute concerns unpaid invoices for delivered electricity for the period from 1 May to 31 May 2022. The Company has filed a response to the lawsuit.

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 19), 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.

More information on “GRI 2-27 – Compliance with laws and regulations” can be found in “GRI – Global Reporting Initiative”.

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 Management 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.