23 – LITIGATION AND CONTINGENCIES

23.1 Lawsuits and other legal actions:

In the opinion of the Company’s legal counsel, the Parent Company and its subsidiaries do not face legal or extrajudicial contingencies that might result in material or significant losses or gains, except for the following:

Embotelladora del Atlántico S.A. faces labor, tax, civil and trade lawsuits. Accounting provisions have been made for the contingency of a probable loss because of these lawsuits, totaling ThCh$ 942,173. Management considers it unlikely that non-provisioned contingencies will affect the Company’s income and equity, based on the opinion of its legal counsel. Additionally, Embotelladora del Atlántico S.A. maintains time deposits for an amount of ThCh$ 457,576 to guaranty judicial liabilities

Rio de Janeiro Refrescos Ltda. faces labor, tax, civil and trade lawsuits. Accounting provisions have been made for the contingency of a probable loss because of these lawsuits, totaling ThCh$ 66,070,162. Management considers it unlikely that non-provisioned contingencies will affect the Company’s income and equity, based on the opinion of its legal counsel. As it is customary in Brazil, Rio de Janeiro Refrescos Ltda. maintains Deposit in courts and assets given in pledge to secure the compliance of certain processes, irrespective of whether these have been classified as a possible, probable or remote. The amounts deposited or pledged as legal guarantees As of December 31, 2019 and 2018, amounted to ThCh$ 32,166,823 and ThCh$ 31,143,415, respectively.

Part of the assets held under warranty by Rio de Janeiro Refrescos Ltda. as of December 31, 2014, are in the process of being released and others have already been released in exchange for guarantee insurance and bond letters for BRL 1,152,911,259, with different Financial Institutions and Insurance Companies in Brazil, these entities receive an annual commission fee of 0.59%.and become responsible of fulfilling obligations with the Brazilian tax authorities should any trial result against Rio de Janeiro Refrescos Ltda. Additionally, if the warranty and bail letters are executed, Rio de Janeiro Refrescos Ltda. promises to reimburse to the financial institutions and Insurance Companies any amounts disbursed by them to the Brazilian government.

Main contingencies faced by Rio de Janeiro Refrescos are as follows:

Tax contingencies resulting from credits on tax on industrialized products (IPI).

Rio de Janeiro Refrescos is a party to a series of proceedings under way, in which the Brazilian federal tax authorities demand payment of value-added tax on industrialized products (Imposto sobre Produtos Industrializados, or IPI) allegedly owed by ex-Companhia de Bebidas Ipiranga. The initial amount demanded reached BRL 1,330,473,161 (historical amount without adjustments), corresponding to different trials related to the same cause. In September 2014, one of these trials for BRL 598,745,218, was settled in favor of the Company, and additionally during 2017 several trials were settled in favor of the Company in the amount for BRL 135,282,155 however, there are new lawsuits arising after the purchase of ex-Companhia de Bebidas Ipiranga (October 2013) that amount to BRL 375,286,356.

The Company does not share the position of the Brazilian tax authority in these procedures and considers that Companhia de Bebidas Ipiranga was entitled to claim IPI tax credits in connection with purchases of certain exempt raw materials from suppliers located in the Manaus free trade zone.

Based on the opinion of its advisers, and legal outcomes to date, Management estimates that these procedures do not represent probable losses and has not recorded a provision on these matters.

Notwithstanding the above, the IFRS related to business combination in terms of distribution of the purchase price establish that contingencies must be measured one by one according to their probability of occurrence and discounted at fair value from the date on which it is deemed the loss can be generated. According to this criterion, from a total of identified contingencies amounting BRL 694,085,017 (including readjustments of current lawsuits), the Company recorded a provision for the beginning of business combination accounting in the amount BRL 213,122,274 equivalent to ThCh$ 39,608,019.

Tax contingencies on ICMS and IPI causes.

They refer mainly to tax settlements issued by advance appropriation of ICMS credits on fixed assets, payment of the replacement of ICMS tax to the operations, untimely IPI credits calculated on bonuses, among other claims.

The Company does not consider that these judgments will result in significant losses, given that their loss, according to its legal counsel, is considered unlikely. However, the accounting standards of financial information related to business combination in terms of distribution of the purchase price, establish contingencies must be valued one by one according to their probability of occurrence and discounted to fair value from the date on which it is deemed that the loss can be generated. Based on this criterion, a starting provision has been made in the accounting of the business combination for BRL 77,587,076 equivalent to ThCh$ 14,412,520.

Embotelladora Andina S.A. and its Chilean subsidiaries face labor, tax, civil and trade lawsuits. Accounting provisions have been made for the contingency of a probable loss because of these lawsuits, totaling ThCh$ 2,065,496. Management considers it is unlikely that non-provisioned contingencies will affect income and equity of the Company, in the opinion of its legal advisors.

Paraguay Refrescos S.A. faces tax, trade, labor and other lawsuits. Accounting provisions have been made for the contingency of any loss because of these lawsuits amounting to ThCh$ 3,488. Management considers it is unlikely that non-provisioned contingencies will affect income and equity of the Company, in the opinion of its legal advisors.

23.2 Direct guarantees and restricted assets:

Guarantees and restricted assets are detailed as follows:

Guarantees that commit assets included in the financial statements:

Committed assets

Accounting value

Guaranty creditor

Debtor name

Relationship

Guaranty

Type

12-31-2019

12-31-2018

ThCh$

Gas Licuado Lipigas S.A.

Embotelladora Andina S.A.

Parent company

Cash

Trade debtors and other accounts receivable

—

1,140

Transportes San Martin

Embotelladora Andina S.A.

Parent company

Cash

Trade debtors and other accounts receivable

2,805

—

Cooperativa Agrícola Pisquera Elqui Limitada

Embotelladora Andina S.A.

Parent company

Cash

Other non-current financial assets

1,216,865

—

Inmob. e invers. supetar Ltda.

Transportes Polar

Subsidiary

Cash

Other non-current non-financial assets

4,579

Maria Lobos Jamet

Transportes Polar

Subsidiary

Cash

Other non-current non-financial assets

2,565

Bodega San Francisco

Transportes Polar

Subsidiary

Cash

Other non-current non-financial assets

6,483

—

Employee claims

Rio de Janeiro Refrescos Ltda.

Subsidiary

Deposit in court

Other non-current non-financial assets

6,600,863

5,336,644

Civil and tax claims

Rio de Janeiro Refrescos Ltda.

Subsidiary

Deposit in court

Other non-current non-financial assets

12,186,432

12,597,136

Government entities

Rio de Janeiro Refrescos Ltda.

Subsidiary

Plant & equipment

Property, Plant & Equipment

13,379,610

13,209,635

Distribuidora Baraldo S.H.

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

250

369

Acuña Gomez

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

375

553

Nicanor López

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

268

395

Labarda

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

Municipalidad Bariloche

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

36,313

21,420

Municipalidad San Antonio Oeste

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

27,598

40,682

Municipalidad Carlos Casares

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

1,116

1,645

Municipalidad Chivilcoy

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

172,602

254,430

Others

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

Granada Maximiliano

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

2,250

3,317

Cicsa

Embotelladora del Atlántico S.A.

Subsidiary

Cash deposit

Other current non-financial assets

3,128

4,612

Other lessors

Embotelladora del Atlántico S.A.

Subsidiary

Cash deposit

Other current non-financial assets

15,289

46,169

Aduana de EZEIZA

Embotelladora del Atlántico S.A.

Subsidiary

Cash deposit

Other current non-financial assets

422

3,013

Municipalidad de Junin

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

360

1,592

Almada Jorge

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

3,054

4,949

Municipalidad de Picun Leufu

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

—

Mirgoni Marano

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

112

Farias Matias Luis

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

1,401

309

Temas Industriales SA - Embargo General de Fondos

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

156,759

231,077

Gomez Alejandra Raquel

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

—

Lopez Gustavo Gerardo C/Inti Saic Y Otros

Embotelladora del Atlántico S.A.

Subsidiary

Cash deposit

Other current financial assets

—

226

Tribunal Superior De Justicia De La Provincia De Córdoba

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

—

290

DBC SA C CERVECERIA ARGENTINA SA ISEMBECK

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

28,129

41,465

Coto Cicsa

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

5,001

—

Cencosud

Embotelladora del Atlántico S.A.

Subsidiary

Deposit in court

Other non-current non-financial assets

3,125

—

Marcus A.Peña

Paraguay Refrescos

Subsidiary

Real estate

Property, Plant & Equipment

3,955

4,164

Mauricio J Cordero C

Paraguay Refrescos

Subsidiary

Real estate

Property, Plant & Equipment

917

904

José Ruoti Maltese

Paraguay Refrescos

Subsidiary

Real estate

Property, Plant & Equipment

738

758

Alejandro Galeano

Paraguay Refrescos

Subsidiary

Real estate

Property, Plant & Equipment

1,275

1,251

Ana Maria Mazó

Paraguay Refrescos

Subsidiary

Real estate

Property, Plant & Equipment

1,213

1,191

33,865,874

31,816,784

Guarantees provided without obligation of assets included in the financial statements:

Committed assets

Amounts involved

Guaranty creditor

Debtor name

Relationship

Guaranty

Type

12.31.2019

12.31.2018

ThCh$

Employee procedures

Rio de Janeiro Refrescos Ltda.

Subsidiary

Guaranty receipt

Legal proceeding

2,819,285

2,601,353

Administrative procedures

Rio de Janeiro Refrescos Ltda.

Subsidiary

Guaranty receipt

Legal proceeding

10,432,633

8,233,853

Federal Government

Rio de Janeiro Refrescos Ltda.

Subsidiary

Guaranty receipt

Legal proceeding

138,635,908

116,192,877

State Government

Rio de Janeiro Refrescos Ltda.

Subsidiary

Guaranty receipt

Legal proceeding

54,803,911

43,015,207

Sorocaba Refrescos

Rio de Janeiro Refrescos Ltda.

Associate

Loan

Guarantor

3,715,186

3,586,095

Others

Rio de Janeiro Refrescos Ltda.

Subsidiary

Guaranty receipt

Legal proceeding

3,757,062

3,236,092

Aduana de EZEIZA

Embotelladora del Atlántico S.A.

Subsidiary

Surety insurance

Faithful compliance of contract

673,854

699,502

Aduana de EZEIZA

Andina Empaques Argentina S.A.

Subsidiary

Surety insurance

Faithful compliance of contract

506,623

182,459