Accounting policy applied
Provisions are established if the Group is subject to an existing legal or usually expected obligation attributable to future events and when it may be reasonably expected that the fulfillment of this obligation will cause the outflow of cash and the amount of such obligation may be credibly estimated. The recognized amount of provisions reflects the most precise possible estimate of the amount that must be used to settle the ongoing liability as at the balance sheet date, taking into account the risk and uncertainty related to that liability. If provisions are valuated using the method of estimated cash flows necessary to settle the ongoing liability, its balance sheet value shall correspond to the value of those flows at the given moment (if the inflow of cash in time is significant). If it is likely that a portion or all the economic benefits, required for settlement of provisions, may be recovered from a third party, such receivables shall be recognized as an asset component if the likelihood of recovering that amount is adequately high and may be credibly estimated.
If it is impossible to unequivocally determine whether the present liability exists, for example in the event of a court case, the Group shall establish reserves for such events if it concludes that after taking into account all the available evidence, such liability is more likely to exist as at the balance sheet date than it is not. If the present liability is more likely not to exist that it is to exist as at the balance sheet date, the Group shall disclose the information on the contingent liability unless it is unlikely that there will be the outflow of the means entailing economic benefits.
Structure of other provisions
Data in ths. PLN
|As at 31/12/2017 (audited)||As at 31/12/2016 (audited)|
|Provisions for penalties from the Office for Protection of Competition and Consumers (UOKiK)||14,224||16,455|
|Provision for land reclamation||5,000||4,908|
|Provision for onerous contracts||16,660||8,159|
|Provision for liabilities related to VAT settlements||22,334||-|
Change to the current value of other provisions
Data in ths. PLN
|Provisions for penalties from the Office for Protection of Competition and Consumers (UOKiK)||Provision for land reclamation||Provision for onerous contracts||Provision for liabilities related to VAT settlements||Other provisions||Total|
|As at 1 January 2017 (audited)||16,455||4,908||8,159||-||21,848||51,370|
|Foreign exchange differences resulting from translation of financial statements of foreign entities||-||(14)||(44)||-||(20)||(78)|
|As at 31 December 2017 (audited)||14,224||5,000||16,660||22,334||23,954||82,172|
|As at 1 January 2016 (audited)||16,209||5,356||9,737||-||15,440||46,742|
|Foreign exchange differences resulting from translation of financial statements of foreign entities||-||197||348||-||116||661|
|As at 31 December 2016 (audited)||16,455||4,908||8,159||-||21,848||51,370|
Provisions for penalties from the Office for Protection of Competition and Consumers (UOKiK)
As at 31 December 2016, the provision represented an estimate by the Parent Company’s Management Board in connection with probable payment of two financial penalties imposed by the Office for Protection of Competition and Consumers (UOKiK) in the amount of PLN 14,224 thousand and 2,231 thousand respectively.
In the financial year ended on 31 December 2017, the amount of provisions changed regarding the penalty imposed on the Parent Company based on decision no. RWR 44/2012 issued by the President of the UOKiK on 31 December 2012 and stating that the Parent Company used a practice which involved making it difficult for a business partner to be able to compete with freight forwarding companies belonging to the PKP CARGO Group. The penalty was imposed in the amount of PLN 16,576 thousand. The Parent Company filed an appeal in the case, as a result of which, on 23 November 2015, the Regional Court in Warsaw changed the appealed decision and reduced the originally imposed penalty from PLN 16,576 thousand to PLN 2,231 thousand. Consequently, as at 31 December 2015, the Parent Company revalued the provision down to the amount of PLN 2,231 thousand. Both parties filed an appeal against the verdict of the court of the first instance. On 24 August 2017, the Appellate Court in Warsaw issued a verdict changing the first instance court’s decision by raising the penalty amount to PLN 3,188 thousand. The verdict is final, so the Parent Company, as at 30 June 2017, increased the provision for the penalty by PLN 957 thousand. The penalty was paid in full by the Parent Company on 7 September 2017.
As at 31 December 2017, no circumstances have occurred that would cause the need to revalue the established provision in the amount of PLN 14,224 thousand. As a result of the occurrence of future events, the estimates made by the Parent Company’s Management Board may be changed in subsequent reporting periods.
Provision for land reclamation
The provision has been established to cover future expenses associated with the duty to reclaim the land. The estimated amount of the provision corresponds to the current value of expected future expenses.
Provision for onerous contracts
As at 31 December 2016, the provision represented the amount of predicted loss on the executed property lease agreement, for which the expected revenues would not cover the lease expenses incurred by the Group. In the financial year ended 31 December 2017, as a result of conducted analysis, the Group identified two procurement agreements valid until 31 December 2017 and 31 December 2018 respectively, for which the inevitable costs of fulfilling the resulting duties were higher than the predicted benefits achievable pursuant to these agreements.; a provision was therefore established in the amount of PLN 14,902 thousand. As a result of performing these agreements, some part of the provision was utilized.
Provision for liabilities related to VAT settlements
In the 2014-2016 period, the Fiscal Inspection Authority (Urząd Kontroli Skarbowej, “UKS”) conducted an inspection procedure in PKP CARGO CONNECT Sp. z o.o. (formerly: Przedsiębiorstwo Spedycyjne Trade Trans sp. z o.o., "PKP CC”) to verify the declared taxation bases and calculations and payments of the goods and services tax for the period from April 2013 to July 2013. As a result of the conducted procedures, the UKS found that some invoices did not reflect the actual course of economic events and therefore the input tax amount in excess of the tax due for refund for the above months was incorrectly calculated. On 29 December 2016, PKP CC received a decision issued by the Head of the UKS in Warsaw in which the authority defined new VAT amounts to be refunded for the period from April to July 2013, in connection with which there emerged an overdue tax liability of PLN 16,627 thousand with interest of PLN 4,623 thousand as at 31 December 2016. PKP CC appealed the decision, but it nevertheless paid the entire overdue amount with the interest on 13 January 2017. As a result of the conducted appeal proceeding, a decision was issued by the Head of the Fiscal Administration Chamber in Warsaw to hand over the case to be reexamined by the first instance authority. In September 2017, the amount previously paid by PKP CC was refunded for procedural reasons. Following an analysis of the risk that the tax authorities will challenge the VAT settlements, the PKP CC’s Management Board decided to recognize a provision in the amount of the refund received. Recognition of the transaction did not affect the Group’s financial result.
The item includes mainly provisions for contractual penalties, disputed claims and litigation. According to the Parent Company’s Management Board, the amount of other provisions as at 31 December 2017, and as at 31 December 2016, constitutes the best estimate of the amount that will likely have to be paid. The estimate is based on the management’s best knowledge, the experience to date and other factors which are considered to be the most reasonable in the given situation.