Question ID: 622
Regulation Reference: (EU) No 2015/2450 - templates for the submission of information to the supervisory authorities
Article: 35
Status: Final
Date of submission: 26 Apr 2016
Question
Where the reporting entity, in respect to a prior acquisition of a subsidiary undertaking, has an obligation to pay additional proceeds to the vendor where certain stipulated thresholds are exceeded, how is the maximum value to be determined?
In theory, there is no limit to the amount that could be paid, given that such additional amounts are computed as a percentage of the excess. Please advise.
EIOPA answer
It should be an estimation of the maximum amount representing the future cash out-flows required to settle the contingent liability over the lifetime of that contingent liability, discounted at the relevant risk-free interest rate term structure.
More details would need to be known from the specific situation, regarding how the excess and additional proceeds are calculated and under which situation it would occur, but it could be for instance that the maximum value is the total value of the subsidiary?
Undertakings would need to make reasonable assumptions and estimate a maximum value. In case of doubts undertakings should contact the NCA.