23 – Other Provisions

Accounting policies

Other provisions are recognized when there is a present obligation as a result of a past event and when there is a probable outflow of resources whose amount can be reliably estimated. Provisions are recognized at the probable settlement value.

Provisions for environmental protection and remediation costs are recognized for expected costs for rehabilitating contaminated sites, recultivating landfills, removal of environmental contamination at existing production or storage sites and similar measures.

In addition, other provisions also cover expected costs for restoration obligations for dismantling existing plants and buildings. If BASF is the only responsible party that can be identified, the provision covers the entire expected obligation. At sites operated together with one or more partners, the provision generally covers only BASF’s share of the expected obligation. The amount of the provision is determined based on the available technical information on the site, the technology used, legal regulations, and official requirements. The calculation accounts for expected significant changes in obligations.

Provisions for restructuring measures include severance payments to departing employees or similar personnel expenses as well as expected costs for site closures, including the costs for demolition and similar measures. Provisions are recognized for these expenses when the relevant measures have been planned and announced by management.

Provisions for employee obligations primarily consist of variable compensation including associated social security contributions, as well as obligations for granting long-service bonuses. Provisions for long-service and are predominantly calculated based on actuarial principles.

Provisions for obligations from sales and purchase contracts largely comprise obligations arising from rebates granted and other price discounts in the Agricultural Solutions segment, warranties and product liabilities, sales commissions and expected losses on contracts.

Provisions for litigation, damage claims, warranties and similar obligations contain anticipated expenses from lawsuits in which BASF is the defendant party, as well as obligations under damage claims against BASF and fines. In order to determine the amount of the provisions, the company takes into consideration the facts related to each case, the size of the claim, claims awarded in similar cases and independent expert advice as well as assumptions regarding the probability of a successful claim and the range of possible claims. Actual costs can deviate from these estimates.

The probable amount required to settle noncurrent provisions is discounted if the effect of discounting is material. In this case, the provision is recognized at present value. Assumptions must be made in determining the discount rate (2020: 1.5%; 2019: 1.5%) used for calculating noncurrent provisions. Financing costs related to unwinding the discount of provisions in subsequent periods are shown in other financial result.

The decrease in provisions for employee obligations was mainly attributable to lower accruals for variable compensation components.

The decrease in provisions for obligations from sales and purchase contracts resulted from lower accruals for rebate programs.

Other includes interest on noncurrent tax provisions. The rise in the remaining other provisions as of December 31, 2020, is primarily due to the rise in provisions for licenses.

The following table shows the development of other provisions by category. Other changes include reclassifications to disposal groups, changes in the scope of consolidation, divestitures, currency effects and the reclassification of obligations to liabilities when the amount and timing of these obligations become known.