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CONTINGENCIES
6 Months Ended
Jun. 30, 2022
Commitments and Contingencies Disclosure [Abstract]  
CONTINGENCIES CONTINGENCIES
Brazilian Tax Assessments
Tax on Manufactured Products – minimum pricing rules
In December 2021, October 2017 and June 2022, our Brazilian subsidiary, Avon Industrial LTDA (Avon Brazil Manufacturing), received excise tax ("IPI") assessments notices for the years 2008, 2014 and 2018.
As in prior IPI cases that have been resolved in Avon’s favor, the assessments assert that the establishment in 1995 of separate manufacturing and distribution companies in Brazil was done without a valid business purpose, and that Avon Brazil Manufacturing did not observe minimum pricing rules to define the taxable basis of the tax on manufactured products. The structure adopted in 1995 is comparable to that used by many other companies in Brazil. We believe that our Brazilian corporate structure is appropriate, both operationally and legally, and that the assessments are unfounded.
These matters are being contested at the administrative court, where proceedings are currently in progress. As of June 30, 2022, the total disputed amount classified as a remote risk of loss was $463. As of December 31, 2021, the total disputed amount of $360 was classified as a reasonably possible risk of loss. The change in classification was a result of enactment of new legislation in Brazil in July 2022, whilst the change in the total amount was largely due to the new assessment received in June 2022 and movements in foreign exchange rates.
Tax on Manufactured Products – Decree equated certain commercial companies (not subject to IPI taxation) to industrial companies (IPI taxpayers)
In May 2015, an executive decree established the levy of IPI on the sales of cosmetic products by Avon Brazil. Avon Brazil filed an objection to this levy on the basis that it is not constitutional since this tax is already paid by Avon Brazil Manufacturing. In December 2016, Avon Brazil received a favorable decision from the Federal District Court regarding this objection. This decision has been appealed by the Federal Tax Authority. As of June 30, 2022 and December 31, 2021, the total amount under discussion classified as a reasonably possible risk of loss was $278 and $243, respectively, with the increase being largely a result of higher interest and taxes due, and movements in foreign exchange rates.
Talc-Related Litigation
The Company has been named a defendant in numerous personal injury lawsuits filed in U.S. courts, alleging that certain talc products the Company sold in the past were contaminated with asbestos. Many of these actions involve a number of co-defendants from a variety of different industries, including manufacturers of cosmetics and manufacturers of other products that, unlike the Company’s products, were designed to contain asbestos. As of June 30, 2022 and December 31, 2021, there were 178 and 158 individual cases. respectively. pending against the Company. During the three months ended June 30, 2022, 38 new cases were filed and 18 cases were dismissed, settled or otherwise resolved. The value of the settlements was not material, either individually or in the aggregate, to the Company’s results of operations for the three months ended June 30, 2022. Additional similar cases arising out of the use of the Company’s talc products are reasonably anticipated.
We believe that the claims asserted against us in these cases are without merit. We are defending vigorously against these claims and will continue to do so. To date, there have been no findings of liability enforceable against the Company. However, nationwide trial results in similar cases filed against other manufacturers of cosmetic talc products have ranged from outright dismissals to very large jury awards of both compensatory and punitive damages. Given the inherent uncertainties of litigation, we cannot predict the outcome of all individual cases pending against the Company, and we are only able to make a specific estimate for a small number of individual cases that have advanced to the later stages of legal proceedings. For the remaining cases, we provide an estimate of exposure on an aggregated and ongoing basis, which takes into account the historical outcomes of all cases we have resolved to date. Any adverse outcomes, either in an individual case or in the aggregate, could be material. Future costs to litigate these cases, which we expense as incurred, are not known but may be significant, though some costs will be covered by insurance.
Brazilian Labor-Related Litigation
On an ongoing basis, the Company is subject to numerous and diverse labor-related lawsuits filed by employees in Brazil. These cases are assessed on an aggregated and ongoing basis based on historical outcomes of similar cases. The claims made are often for significantly larger sums than have historically been paid out by the Company. Our practice continues to be to recognize a liability based on our assessment of historical payments in similar cases. Our best estimate of the probable loss for such cases at June 30, 2022 and December 31, 2021 was approximately $12 and $11, respectively. Accordingly, we have recognized a liability for this amount.
Brazilian Financial Indemnities
As of June 30, 2022 and December 31, 2021, the Company has issued a number of guarantees totaling $181 and $157, respectively, which it could be required to make in the event of adverse judgments in a number of lawsuits in Brazil.
Other Matters
Various other lawsuits and claims, arising in the ordinary course of business or related to businesses previously sold, are pending or threatened against Avon. In management’s opinion, based on its review of the information available at this time, the total cost of resolving such other contingencies at June 30, 2022 is not expected to have a material adverse effect on our consolidated financial position, results of operations or cash flows.