Provisions for exposures and litigation are determined on a case-by-case basis and rely on management’s best estimate of the outflows deemed likely to satisfy legal or implicit obligations to which the Group is exposed as of the end of the fiscal year.
Current and non-current provisions are as follows:
| AUGUST 31, 2023 | AUGUST 31, 2022 | |||
|---|---|---|---|---|
| (in million euros) | CURRENT | NON-CURRENT | CURRENT | NON-CURRENT |
| Reorganization costs | 19 | — | 17 | — |
| Employee claims and litigation | 19 | 23 | 21 | 34 |
| Tax and social security exposures | 13 | 16 | 14 | 18 |
| Contract termination and loss-making contracts | 3 | 22 | 13 | 8 |
| Client/supplier claims and litigation | 10 | 13 | 23 | 14 |
| Negative net assets of associates* | — | 7 | — | 8 |
| Other provisions | 15 | 29 | 11 | 33 |
| TOTAL PROVISIONS | 79 | 110 | 99 | 115 |
* Investments in companies accounted for using the equity method that have negative net assets (see note 8).
During Fiscal 2021, the subsidiary 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 covers the period from 2015 to 2017 and amounts to 215 million Brazilian real to date, i.e., 40 million euros as of August 31, 2023 (of which 9 million euros in principal and 31 million euros in penalties and late payment interests). In August 2021, the competent administrative Court ruled in favor of Sodexo do Brasil Comercial but the Brazilian tax authorities appealed this first instance decision. However, the Group considers that the risks of a change in the decision are low, considering, on the one hand, that it has strong arguments to contest the tax reassessment and, on the other hand, the recent favorable decision of the CSRF ending the dispute between Sodexo Pass do Brasil and the Brazilian tax authorities on the same issue mentioned below.
The goodwill amount has been fully amortized. The tax saving 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 periods, in accordance with IFRS rules. The deferred tax liability related to the reassessed periods amounts to 26 million euros as of August 31, 2023.
In addition, Sodexo and its main competitors have a different interpretation from that of the Brazilian tax administration on the deductibility of PIS/COFINS on certain purchases made at a zero rate. Several proceedings are underway, either at the initiative of the tax authorities, which have notified Sodexo do Brasil Comercial of an adjustment in respect of credits recognized in 2016 of 9 million euros (including penalties and interest for late payment), or at the initiative of the company, which has filed several claims in the courts. One of these proceedings initiated by Sodexo do Brasil Comercial was suspended, on the initiative of the judge, until the Supreme Court's decision on another company's case. In February 2023, the Supreme Court issued its decision, which was unfavorable to the Company concerned: the judges essentially ruled that ordinary law may provide for limitations on the use of PIS/ COFINS credits, provided that such law respects all constitutional principles, in particular equality of treatment of taxpayers and free competition. This decision, which should not be considered automatically unfavorable for the individual cases of each taxpayer, does not affect the appeals filed by Sodexo, which will continue to follow their respective courses. Sodexo do Brasil Comercial believes that it has different and strong enough arguments to ultimately succeed in court on this issue. After consultation with its advisors, Sodexo considers that its chances of success in these proceedings are good and that to date the risk of an outflow of resources associated with the PIS/COFINS credits deducted since 2016 remains unlikely; therefore, no provision has been recorded in the consolidated financial statements as of August 31, 2023.
As a reminder, the subsidiary Sodexo Pass do Brasil was in dispute with the Brazilian tax authorities regarding the tax deductibility of the amortization of goodwill recognized on the acquisition of VR in March 2008.
In Fiscal 2017, Sodexo Pass do Brasil received a tax reassessment notice for fiscal years 2010 to 2012 challenging the deductibility for tax purposes of the goodwill amortization, with 150% penalties and late payment interest.
The Group firmly disputed this reassessment, which the Brazilian tax authorities originally envisaged during a previous tax audit covering the fiscal years 2008 and 2009 but then abandoned, as it considered that the tax amortization of goodwill was valid and that the procedure therefore had a strong chance of succeeding in its favor.
This dispute was decided on August 14, 2018 before the competent administrative court (CARF). The court ruled in favor of Sodexo Pass do Brasil, considering that the goodwill and corresponding tax amortization were legitimately recognized on the acquisition of VR. This ruling in favor of Sodexo Pass do Brasil was confirmed by the Superior Court of Appeal (CSRF) at a hearing on September 13, 2022 and notified in writing to the Group on October 27, 2022. The Federal Tax Administration has already taken note of the decision, without expressing any request for clarification, thus definitively ending the dispute in favor of Sodexo Pass do Brasil.
It is recalled that, the reassessment amounted to 573 million Brazilian reals, i.e., 111 million euros as of August 31, 2022 (29 million euros in principal, 43 million euros in penalties and 40 million euros in late payment interest). 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 deferred tax liability related to the reassessed periods amounted to 29 million euros as of August 31, 2022 (24 million euros as of August 31, 2021).
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 euros. This decision was formally notified to Sodexo Pass France and Sodexo S.A. on February 6, 2020. Sodexo vigorously contests this decision considering that it 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 hearing was held on November 18, 2021, and the Court of Appeal is expected to render its decision on November 16, 2023.
