The Company is in dispute with the Brazilian tax authorities regarding the tax deductibility of the amortization of goodwill recognized on the purchase of VR in March 2008. For the record, in Fiscal year 2017, Sodexo Pass do Brasil received a tax reassessment notice from the Brazilian tax authorities for fi scal years 2010, 2011 and 2012 relating to the deductibility for tax purposes of the amortization of goodwill recognized on the purchase of VR in March 2008. The reassessment amounted to 88 million euro (breaking down as 24 million euro in principal and 64 million euro in penalties and late payment interest).
Sodexo Pass do Brasil is firmly disputing this reassessment, which the Brazilian tax authorities originally envisaged during a previous tax audit covering fiscal years 2008 and 2009 but then abandoned. The Company considers that the goodwill amortization was valid, both in terms of its underlying reasons and the way it has been recorded. Therefore, the Company considers that there is a strong probability of winning the dispute with the tax authorities, and this has been confirmed by its tax advisors. Consequently, no provision was recorded for this dispute in the consolidated statement of financial position as of August 31, 2017.
This dispute was presented on August 14, 2018 for a judgment of the competent administrative court. The court ruled in favor of Sodexo Pass do Brasil as it considered that the goodwill and corresponding amortization were legitimately recognized on the acquisition of VR. The judgment therefore confirms that Sodexo Pass do Brasil acquired a full business structure when it purchased VR.
This judgment can be reversed on appeal. The Group believes, after consulting its advisers, that the risk of change in this judgement is low.
The tax savings generated by this tax depreciation were offset in the consolidated accounts of the Group by a deferred tax expense of the same amount for each of the financial periods concerned, in accordance with the IFRS rules. The deferred tax liability related to the reassessed periods amounts to 24 million euro as of August 31, 2021 (30 million euro as of August 31, 2020 ).
During Fiscal 2021, Sodexo do Brasil Comercial received a tax reassessment notice mainly linked to the tax deductibility of the amortization of goodwill recognized on the purchase of Puras. The reassessment is covering the period from 2015 to 2017 and raise to 29 million euro (of which 8 million in principal and 21 million euro in penalties and late payment interests). In August 2021, the competent administrative Court ruled in favor of the Company. The Group considers it has strong arguments to contest the tax reassessment and prevail in court.
The Goodwill amount has been fully amortized. The tax savings generated by this tax depreciation were offset in the consolidated accounts of the Group by a deferred tax expense of the same amount for each of the related financial periods, in accordance with the IFRS rules. The balance of the related deferred tax liability amounts to 23 million euro as of August 31, 2021.
In addition, Sodexo and its main competitors have a different interpretation from that of the Tax Administration on the deductibility of PIS/COFIN on certain purchases that are made at a zero rate. Proceedings are still ongoing but suspended pending the decision of the Supreme Courts (which will judge in law on another taxpayer). Based on the opinion of its tax advisers, the Group considers that its chances of success in these proceedings are good and therefore did not consider it necessary at this stage to provision for appropriations deducted to date.
On October 9, 2015, the company Octoplus filed a complaint with the French Competition Authority (Autorité de la concurrence) concerning several French meal voucher issuers, including Sodexo Pass France. Following the hearing of the parties concerned in April and July 2016, the Competition Authority decided on October 6, 2016 to continue the proceedings, without ordering interim measures against Sodexo Pass France.
On February 27, 2019, the prosecution services sent their final investigation report to Sodexo Pass France. In its response filed on April 29, 2019, the Group contested both of the grievances notified by the Authority (exchange of information and foreclosure of the meal voucher market through the Centrale de Règlement des Titres). On December 17, 2019, the French Competition Authority ruled against the meal voucher issuers and fined Sodexo Pass France, jointly and severally with Sodexo S.A., 126 million euro. This decision was formally notified to Sodexo Pass France and Sodexo S.A. on February 6, 2020. Given the significant impact of the Covid-19 pandemic on the Group's activities and performance, Sodexo obtained a decision from the Tax Authorities allowing it to defer payment of the fine without any penalty being due, subject to providing a guarantee in the same amount. The payment date is scheduled for December 15, 2021.
Sodexo nevertheless vigorously contests the decision which demonstrates a flawed understanding of the practices in question and of the way in which the market operates. Sodexo has therefore lodged an appeal against the decision with the Paris Court of Appeal. The appeal proceeding is ongoing and the hearing is scheduled for November 18, 2021. After consultation with its legal advisers, the Group considers that it has solid arguments capable of resulting in the reversal or revision of the decision of the Competition Authority. As a result, no provision has been made for this dispute.
Following legislative and regulatory changes to the issuance of food and meal voucher market in Hungary, Sodexo made an application to the International Center for Settlement of Investment Disputes (ICSID) in July 2014 for arbitration proceedings to be commenced against the Hungarian state.
The ICSID issued its decision on January 28, 2019, ordering the Hungarian State to pay compensation in an amount of 73 million euro to Sodexo, together with accrued interest from December 31, 2011.
On May 27, 2019, the Hungarian State lodged an appeal against this decision which was rejected by the ICSID on May 7, 2021 thereby definitively confirming its decision of January 28, 2019 and the obligation of the Hungarian state to compensate Sodexo in accordance with international law. At the closing date, the Hungarian state has still not paid the award and the Group considers it would be premature to record any income. The Group continues to seek all legal measures available to enforce the decision.
Sodexo S.A. received in June 2021 a notification for a proposed tax reassessment concerning Fiscal 2017 with interruption of the statute of limitations. After review with its tax advisors, the Company considers it has strong arguments to contest the proposed reevaluation.
