Risks from guarantees, legal and tax risks
The Group continues to be exposed to risks from guarantees and legal risks. Provisions are recognized for those risks if and insofar as that they are likely to be utilized and the amounts of the obligations can be reasonably estimated. In 2015, the risk and opportunity management system was expanded to include tax risks. No quantitative assessment of tax risks is carried out.
Risks from guarantees
Issuing guarantees results in liability risks for the Group. For example, Daimler holds an equity interest in the system for recording and charging tolls for the use of highways in Germany by commercial vehicles. The operation of the electronic toll-collection system is the responsibility of the operator company, Toll Collect GmbH, in which Daimler holds a 45 % stake and which is included in the consolidated financial statements using the equity method of accounting. In addition to Daimler’s membership of the Toll Collect consortium and its equity interest in Toll Collect GmbH, risks also arise from guarantees that Daimler Financial Services AG has assumed with the other partners in the Toll Collect consortium (Deutsche Telekom AG and Cofiroute S.A.) supporting obligations of Toll Collect GmbH toward the Federal Republic of Germany in connection with the toll system and a call option of the Federal Republic of Germany. Claims could be made under those guarantees if toll revenue is lost for technical reasons, if certain contractually defined performance parameters are not fulfilled, if additional claims are made by the Federal Republic of Germany, if the final operating permit is not granted, if Toll Collect GmbH fails to meet contractual obligations, if it fails to have the required equipment available, or if the Federal Republic of Germany takes over Toll Collect GmbH. The maximum loss risk for the Group from these risks can be substantial. Additional information is provided in Note 29 (Legal proceedings) and Note 30 (Financial guarantees, contingent liabilities and other financial commitments) of the Notes to the Consolidated Financial Statements.
Various legal proceedings, claims and government investigations (legal proceedings) are pending against Daimler AG and its subsidiaries on a wide range of topics, including vehicle safety, emissions, fuel economy, financial services, dealer, supplier and other contractual relationships, intellectual property rights, warranty claims, environmental matters, legal proceedings relating to competition law and shareholder litigation. Product-related litigation involves claims alleging faults in vehicles, some of which have been made as class actions. If the outcome of such legal proceedings is detrimental to Daimler, the Group may be required to pay substantial compensatory and punitive damages or to undertake service actions, recall campaigns or other costly actions.
Some of these proceedings may have an impact on the Group’s reputation. As these proceedings are connected with a large degree of uncertainty, it is possible that after the final resolution of litigation, some of the provisions we have recognized for legal proceedings could prove to be insufficient. As a result, substantial additional expenditures may arise. This also applies to legal proceedings for which the Group has seen no requirement to recognize a provision.
Although the final result of any such litigation may influence the Group’s earnings and cash flows in any particular period, Daimler believes that any resulting obligations are unlikely to have a sustainable effect on the Group’s cash flows, financial position or profitability. Further information on legal proceedings is provided in Note 29 of the Notes to the Consolidated Financial Statements.
Daimler AG and its subsidiaries operate in many countries worldwide and are therefore subject to numerous differing statutory provisions and tax audits. Within the Group, the tax assessments of several years are not yet final. Changes in local tax legislation and court verdicts, and differing interpretations by the fiscal authorities in the various jurisdictions – especially in the field of cross-border transactions – can lead to negative effects on the Group’s net profit and cash flows.
Any changes or interventions by the fiscal authorities are continuously monitored by the Tax department and measures are taken if required.