General Disclosures

(2) Reporting principles

These consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (IFRSs) effective at the end of the reporting period and adopted by the European Union and the additional provisions of section 315e (1) of the German Commercial Code (HGB). The fiscal year is the calendar year. These consolidated financial statements have been prepared in euros, the reporting currency. The values presented in the consolidated financial statements have been rounded. This may lead to individual values not adding up to the totals presented.

The Executive Board of Merck KGaA prepared these consolidated financial statements on February 14, 2024, and approved them to be forwarded to the Supervisory Board. The Supervisory Board is responsible for examining the consolidated financial statements and declaring whether it approves them.

The accounting and measurement policies used in the consolidated financial statements are presented in the respective Notes and are indicated there.

Standards and amendments to standards effective for the first time in fiscal 2023

Amendments to standards effective for the first time from fiscal 2024

Regulations published but not yet endorsed by the European Union

Impact of efforts to achieve international convergence on taxation

Based on the information currently available, Merck expects the efforts to achieve international convergence on tax rules as part of the OECD’s Inclusive Framework to have an impact on the Group’s taxation. Although the tax rules apply to the ultimate parent company of the Group, E. Merck Kommanditgesellschaft, top-up taxes could be payable in a number of jurisdictions, and this could have an impact on the Merck Group.

Allocation of taxing rights (Pillar I)

The planned allocation of taxing rights between jurisdictions as part of the OECD rules is currently still being negotiated. An analysis of the available drafts found that the rules are likely to apply to Merck. Due to the status of the negotiations and the lack of clarity concerning the participation of key nations, it is not currently possible to make a reliable statement about the expected impact.

Ensuring global minimum taxation within the OECD (Pillar II)

The legislation on global minimum taxation was published in the German Federal Law Gazette on December 27, 2023, and came into force on January 1, 2024. The exception provided by IAS 12 for the recognition and disclosure of information about deferred tax assets and liabilities in connection with income taxes relating to global minimum taxation was applied for fiscal 2023. 

Under the regulations on global minimum taxation, Merck is obliged to determine the effective tax rate for each country in which its business units operate within the meaning of the legislation and, where the effective tax rate is lower than the minimum tax rate of 15%, to pay a top-up tax in the amount of the difference. Jurisdictions where Merck has material operating activities and where the nominal tax rate is below 15% are Ireland and Switzerland. Merck is currently taking action to ensure that it satisfies the reporting obligations and tax compliance requirements arising from the legislation. When it comes to determining the effective tax rate, the legislation provides for numerous specific adjustments that can lead to effective tax rates that differ from those calculated in accordance with IAS 12.86. The complexity of applying the legislation, the extensive additional data requirements as a result and changes to the tax rules of individual nations meant that it was not yet possible to quantify the impact precisely and fully at the reporting date. For example, it is possible that the specific adjustments provided for the calculation of minimum taxation will not result in a tax burden for Merck even though the effective tax rate calculated in accordance with IAS 12.86 is lower than 15%. Conversely, minimum taxation may apply even if the effective tax rate is higher than 15%.

Based on a preliminary calculation and taking account of the data available as of the reporting date, Merck anticipates an additional annual tax expense in a mid-double-digit million-euro amount.

Change in the recognition of liabilities and provisions

In order to increase transparency, the tranche of the Merck Long-Term Incentive Plan that is payable in the months following the reporting date has been reported in other current non-financial liabilities rather than current provisions for employee benefits since January 1, 2023. This resulted in a reclassification in the amount of € 158 million. The changes in provisions and other assets and liabilities in the operating cash flow were adjusted by € 166 million accordingly.

For the same reason, liabilities in connection with wages and salaries have been reported in other non-financial liabilities rather than other financial liabilities since January 1, 2023. With regard to the comparative period (December 31, 2022), this resulted in the reclassification of € 127 million to other non-financial liabilities (of which € 121 million to other current non-financial liabilities).