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46. Other liabilities

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46.1 Accounting policy

Financial liabilities are recognized in the statement of financial position of financial position at the moment when a PZU Group company becomes a party to a binding contract, under which it assumes the risks associated with the financial instrument. In the case of transactions concluded on an organized market, the purchase or sale of financial liabilities are recognized in the books on the date of the transaction.

A financial liability (or part thereof) is excluded from the consolidated statement of financial position when the obligation specified in the contract is discharged or canceled or expires.

Financial liabilities measured at fair value through profit or loss included in particular:

  • liabilities on borrowed securities (short sale);
  • investment contracts for the client’s account and risk (unit-linked);
  • liabilities to members of consolidated mutual funds.

Financial liabilities measured at amortized cost included in particular liabilities on account of repurchase transactions. Trade liabilities are recognized at the required payment amount due to their short-term nature.

Accrued expenses resulting from benefits provided for PZU Group companies by external business partners or from an obligation to provide benefits whose value can be estimated, despite the fact that the date when the liability is created is not yet known, is measured at the amount of estimated future cash flows.

The costs of holiday leaves is recognized on the accrual basis using the liability method. The liability on account of employee vacation time is determined based on the difference between the actual amount of vacation time used by employees and the amount that would have been used if the vacation time had been taken pro rata to the elapse of time in the period when the employees are entitled to their vacation time.

46.2 Quantitative data

Other liabilities 31 December 2021 31 December 2020
Liabilities measured at fair value 1 333 1 389
Liabilities on borrowed securities (short sale) 686 851
Investment contracts for the client’s account and risk (unit-linked) 267 268
Liabilities to members of consolidated mutual funds 380 265
Liability on the settlement of the acquisition of shares of Tomma Diagnostyka Obrazowa SA - 5
Accrued expenses 2 230 1 963
Accrued expenses of agency commissions 381 359
Accrued payroll expenses 750 609
Accrued reinsurance expenses 725 731
Other 374 264
Deferred revenue 502 395
Other liabilities 9 138 8 687
Liabilities on account of repurchase transactions 1 207 1 154
Lease liabilities 992 1 064
Liabilities due under transactions on financial instruments 1 338 1 044
Liabilities to banks for payment documents cleared in interbank clearing systems 1 251 1 140
Liabilities on direct insurance 955 915
Liabilities on account of payment card settlements 404 354
Regulatory settlements 275 223
Liabilities for contributions to the Bank Guarantee Fund 629 514
Reinsurance liabilities 228 223
Estimated non-insurance liabilities 159 143
Liabilities to employees 101 42
Estimated refunds of compensation in connection with banks’ clients lapsing or withdrawing from insurance purchased during the sale of credit products 18 30
Trade liabilities 652 611
Current income tax liabilities 147 1) 355
Liabilities on account of employee leaves 165 156
Liabilities to the state budget other than for income tax 68 116
Liabilities on account of donations 17 21
Alior Bank’s liabilities for insurance of bank products offered to the bank’s clients 28 21
Insurance Guarantee Fund 13 14
Liability for the refund of loan costs 96 88
Liabilities for direct claims handling 36 31
Other 359 428
Other liabilities, total 13 203 12 434

1) Including PLN 72 million of a tax liability in Sweden.

Tax liability in Sweden

PZU Finance AB, a PZU subsidiary, issued 5-year bonds in the period from 2014 to 2015, with the par value of EUR 850 million, which matured in July 2019. Proceeds from the issue were forwarded to PZU in the form of two loans for the total amount of EUR 850 million. Payments under the loans matched the payments under bonds in terms of the payment date and amount. PZU repaid loans to PZU Finance AB on 28 June 2019.

In 2018, in connection with concerns regarding taxation under the Swedish Conversion Act (2000:46) of the FX differences in the situation where Euro is a reporting currency, PZU Finance AB applied for an individual tax ruling to the Swedish Tax Interpretation Board (Skatterättsnämnden). On 13 March 2019, PZU Finance AB received a ruling under which the FX differences arising on repayment of the loan should be subject to taxation, while the FX differences arising on repayment of the bonds are not subject to taxation. In the PZU Group’s opinion, the Board’s interpretation would mean that a different approach is applied in Sweden to companies reporting in euros than to companies reporting in Swedish kronor, which would be inconsistent with the assumptions of Article 63 of the Treaty on the Functioning of the European Union (TFEU) on the need to ensure the free movement of capital in the European Union or Articles 49 and 54 TFEU on the freedom of establishment.

On 3 April 2019, PZU Finance AB (publ.) appealed against an individual tax ruling issued by the Swedish Tax Rulings Board to the Supreme Court of Administration (Högsta förvaltningsdomstolen). On 4 May 2020, the Supreme Administrative Court repealed the individual tax ruling in question and rejected the petition submitted by PZU Finance AB, having found that sufficient grounds for the issue of an individual tax ruling had not been demonstrated and thus the ruling should not be issued.

At the same time, on 27 August 2020, PZU Finance AB submitted a tax return as part of the disclosure procedure for 2019, according to which it presented the above situation and assumed in the calculation of the tax liability that the foreign exchange differences on account of repayment of the bond constitute tax-deductible expenses. On 22 December 2020, PZU Finance AB received the tax decision from the tax office confirming that the tax was calculated correctly. The decision was not final. Due to the pursuit of the goals for which the company was established, on 4 May 2021, the Shareholder Meeting decided to commence the liquidation procedure of PZU Finance AB. On 23 June 2021 and 21 December 2021, PZU Finance AB received a preliminary and enforceable, respectively, negative decision from the tax office regarding the adjustment of its tax settlement for 2019. Accordingly, as at 31 December 2021, the PZU Group posted a current income tax liability of PLN 72 million (SEK 159 million). On 21 January 2022, PZU transferred directly to the Swedish tax office SEK 159 million (SEK 155 million of the principal amount and SEK 4 million in interest). As at 31 December 2020, the PZU Group posted a contingent liability on this account in the amount of PLN 92 million.

PZU Finance AB may now initiate court proceedings in Sweden in an administrative court of first instance.

As at 31 December 2021 and 31 December 2020, the fair value of other liabilities did not differ significantly from their carrying amount, primarily due to the fact that more than 90% were short-term liabilities.

Other liabilities by maturity 31 December 2021 31 December 2020
Up to 1 year 11 858 11 246
1 to 5 years 795 759
Over 5 years 550 429
Total other liabilities by maturity 13 203 12 434