Impairment

The Group performs annual impairment tests on (groups of) CGUs to which goodwill has been allocated, and each time there are indicators that their carrying amount might be higher than their recoverable amount. This analysis requires management to estimate the future cash flows expected to be generated by the CGUs and a suitable discount rate in order to calculate present value.

Further details are provided in note F27 Impairment of property, plant and equipment, intangible assets, and equity method investees.

Income taxes

Deferred tax assets

The carrying amount of the deferred tax assets is reviewed at each reporting date. The carrying amount of a deferred tax asset is reduced to the extent that it is no longer probable that the Group will earn sufficient taxable profits against which the deductions can be utilized. Any such reduction is reversed to the extent that it becomes probable that sufficient taxable profits will be available.

Deferred tax assets other than tax loss carryforwards are analyzed on a case-by-case basis, taking into account all relevant facts and circumstances. For example, a zero taxable profit, after deducting the amounts paid to retirees under a defined benefit plan and for which a deductible temporary difference existed, can justify the recognition of the underlying deferred tax assets.

Recognition of deferred tax assets for tax loss carryforwards requires a positive taxable profit during the year that enables the utilization of tax losses that originated in the past. Because of uncertainties inherent to predicting such positive taxable profit, recognition of deferred tax assets from tax loss carryforwards is based on a case-by-case analysis, which is usually based on five-year profit forecasts, except with respect to any financial company for which ten-year financial profit forecasts are considered highly predictable and are consequently used.

The corporate tax reporting team, which has the overview of the Group deferred tax positions, is involved in assessing deferred tax assets.

Further details are provided in note F7.B. Deferred taxes in the consolidation statement of financial position.

Tax reform in the United States

The enactment of the tax reform in the United States at the end of 2017 necessitated key estimates in the 2017 financial reporting. These estimates were reviewed when needed with no material impact except for the partial reversal of the one-time transitional tax on unremitted earnings accrued in 2017 (€ 31 million), resulting from the move from a global to a territorial taxation system.

New guidance issued by the Internal Revenue Service (“IRS”) relating to the US tax reform could be issued in 2019 and trigger a review, if applicable to the Group, of some estimates at year-end 2018.

Further details are provided in note F7.B. Deferred taxes in the consolidation statement of financial position.

Provisions

Restructuring provision for the Group’s simplification plan

On March 29, 2018, Solvay announced it is taking a new step in its transformation, putting its customers at the core of its organization to enhance its long-term growth as an advanced materials and specialty chemicals company. In connection with the announced transformation, a restructuring provision has been recognized, with a net profit or loss impact of € (177) million. The estimate of the provision is based on the number and the cost of redundancy and relocation packages that the Group expects to pay. It is inherently subject to uncertainty and is monitored by the Human Resources department, in close cooperation with the Finance department.

Defined benefit obligations – General

The actuarial assumptions used in determining the defined benefit obligations at December 31, as well as the annual cost, can be found in note F34 Provisions. All main employee benefits plans are assessed annually by independent actuaries. Discount rates and inflation rates are defined centrally by management. The other assumptions (such as future salary increases and expected rates of medical care cost increases) are defined at a local level. All plans are supervised by the Group’s central Human Resources department with the help of a central actuary to check the reasonableness of the results and ensure consistency in reporting.

Further details are provided in note F34.A. Provisions for employee benefits.

Defined benefit obligations – Guaranteed Minimum Pensions (GMP) equalization in the United Kingdom

On October 26, 2018, the High Court in the United Kingdom issued its long-awaited judgment as to whether GMP benefits had to be equalized between men and women and, if so, how this could be achieved. The High Court judged that the equalization applied only for the period 1990-1997, consistent with the European Court ruling in 1990 that occupational pension plans were required to treat men and women equally. In 1997 GMP was abandoned. As there is no unique method on how to equalize GMPs for men and women following this judgment, together with their actuaries, entities in the United Kingdom are currently assessing how to apply this decision.

Based on preliminary estimates, in line with advice from its external actuaries, the best estimate of the impact on Solvay’s defined benefit obligations amounts to € (16) million, and has been recognized in IFRS operating expenses. Any future changes to the calculations will be considered actuarial gains and losses.

Environmental provisions

Environmental provisions are managed and coordinated jointly by the Environmental Rehabilitation department and the Finance department. In the case of environmental impacts stemming from historical production activities, generally no provision is recognized for remediation works beyond 20 years due to the inherent high level of uncertainty as to whether there will be any obligation after the lapse of this period.

The forecasts of expenses are discounted to their present value. The discount rates fixed by geographical area correspond to the average risk-free rate on 10-year government bonds. These rates are set annually by the Finance department and can be revised based on the evolution of economic parameters of the country involved. To reflect the passage of time, the provisions are increased each year at the discount rates described above.

Further details are provided in note F34.B. Provisions other than for employee benefits.

Provisions for litigations

Any significant litigation (tax and other, including threat of litigation) is reviewed by Solvay’s in-house lawyers with the support, when appropriate, of external counsels at least every quarter. This review includes an assessment of the need to recognize provisions and/or remeasure existing provisions together with the Finance department and the Insurance department.

Further details are provided in note F34.B. Provisions other than for employee benefits.