6.3 PROVISIONS

The provisions recognised by the consolidated Group are intended to cover the risks arising from its various operating activities. They are recognised using the best estimates of the existing risks and uncertainties and their possible evolution.

This Note provides a breakdown of all the items composing “Long-Term Provisions” and “Operating Provisions” under liabilities in the consolidated statement of financial position. In addition to these items, there are certain impairment losses and allowances that are presented as a reduction of certain asset line items and which are disclosed in the Notes relating to those specific assets.

The changes in the long- and short-term provisions presented separately under liabilities in the consolidated statement of financial position were as follows:

The table above shows the changes in the year by detailing separately, on the one hand, the charges for the year and reversals that had an impact on the different lines in the consolidated statement of profit or loss and, on the other, other changes which did not have an impact thereon, such as changes in the scope of consolidation and transfers, amounts used recognised in different headings in the consolidated statement of financial position and exchange rate effect.

In this regard, on analysing the effect on the consolidated statement of profit or loss, mention should be made of the net charge (expense) of EUR (70) million with an impact on gross profit from operations, as well as EUR 181 million relating to amounts used recognised in current assets or liabilities. The sum of both figures is consistent with the EUR 111 million allocated for the purpose of working capital in cash flows (see Note 5.3).

Also, as explained in Note 1.1.3, the impact of the transition to IFRS 15 gave rise to a EUR 26 million increase in the Group’s provisions, relating mainly to the Services business.

Provision for landfills

“Provision for Landfills” contains the estimated cost of landfill closure and post-closure activities relating to the landfills operated by the Ferrovial Services business in Spain and UK. The provision is calculated based on a technical estimate of the consumption to date of the total capacity of the respective landfills. This provision is recognised and reversed with a charge/credit, respectively, to changes in provisions within gross profit from operations in the consolidated statement of profit or loss, as the costs required for closure of the landfill are incurred.

Provision for compulsory purchases

The provision for compulsory purchases recognised by the Spanish toll roads, totalling EUR 25 million (31 December 2016: EUR 29 million). This provision is charged against the concession infrastructure as the costs are incurred over the concession term.

Provision for replacements and upgrades pursuant to IFRIC 12

This line item includes the provisions for investments in replacements established by IFRIC 12 (see Note 1.3.3.2). The balance of this heading increased by EUR 17 million from EUR 109 million at December 2016 to EUR 126 million at 31 December 2017. This provision is recognised and reversed with a charge/credit, respectively, to the depreciation and amortisation charge over the period in which the obligations accrue, until the replacement becomes operational.

Provisions for litigation and tax claims

The provisions for litigation amount to EUR 443 million (31 December 2016: EUR 415 million). This line item includes:

• Provisions to cover the possible risks resulting from litigation in progress, amounting to EUR 189 million (31 December 2016: EUR 168 million), of which EUR 94 million (31 December 2016: EUR 121 million) relate to the construction business and EUR 91 million (31 December 2016: EUR 42 million) relate to litigation of the Services business, the details of which are provided in Note 6.5. to these consolidated financial statements. These provisions are recognised and reversed with a charge/credit, respectively, to changes in provisions within gross profit from operations.
• Provisions for tax claims, amounting to EUR 254 million (31 December 2016: EUR 247 million), arising in relation to local or central government duties, income taxes and other taxes, as a result of the varying interpretations that can be made of the tax legislation in the various countries in which the Group operates.
• This provision is recognised and reversed with a charge/credit to gross profit from operations, financial result and/or income tax, depending on the nature of the tax for which the provision has been recognised (penalties, related interest, and/or tax deficiencies in assessments signed on a contested basis).

Provisions for other long-term risks

This line item includes the provisions recognised to cover certain long-term risks other than those attributable to litigation or tax claims, such as third-party liability resulting from the performance of contracts, guarantees provided with enforcement risk and other similar items, which amounted to EUR 84 million at 31 December 2017 (31 December 2016: EUR 79 million).

Short-term provisions

At 31 December 2017 short-term provisions totalled EUR 629 million (31 December 2016: EUR 702 million). “Short-Term Provisions” includes mainly the provisions relating to contracts with customers, such as the provisions for deferred expenses (relating to construction work completion and site removal under the related contract) and the provisions for budgeted losses. In this respect, provisions of this type are concentrated mainly in the Construction Division and amount to EUR 432 million (2016: EUR 540 million) and in the Services Division where they amount to EUR 186 million (31 December 2016: EUR 152 million). These provisions are recognised and reversed with a charge/credit, respectively, to changes in provisions within gross profit from operations.