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Tax strategy – Tax Compliance, Sustainable Tax Efficiency, Tax as Valued Business Partner

The Group Tax department is responsible for ensuring that the Deutsche Telekom Group pays taxes at the local, national and international level in accordance with the applicable laws. This includes the Group’s income taxes, which must also be regularly reported in our IFRS financial statements, as well as indirect taxes (e.g., VAT, sales/use, telecom) and income tax on salaries payable within the context of customer transactions and for Group employees.

Group Tax also ensures that the Group has an efficient tax structure within the framework of German and foreign tax laws as applicable in each country (avoidance of any unnecessary tax burden not prescribed by law). The goal is to achieve sustainable tax efficiency for the Group, for which Group Tax regards transparent, trust-based cooperation with local tax authorities as essential, e.g., in the context of company reorganizations that are advisable in business terms.

In addition, Group Tax undertakes to contribute as much as possible to the success of Deutsche Telekom’s operations, e.g., by providing detailed advice regarding new business models or innovative technological developments. In such matters, it focuses particularly on clarifying upfront any unresolved tax law-related issues as well as providing practical solutions to meeting all applicable tax requirements.

Organisation of the Deutsche Telekom tax function
The three pillars of the Tax Strategy – Tax Compliance, Sustainable Tax Efficiency, Tax as Valued Business Partner – were approved by the management board of Deutsche Telekom and are consistent with the approaches to tax management applied by the tax departments of non-German group companies.

On a regular basis, the management board of Deutsche Telekom inter alia addresses tax implications and topics when dealing with various board presentations. Important separate tax topics are presented to the management board of Deutsche Telekom by the director of Group Tax and the CFO of Deutsche Telekom.

Group Tax and the director of Group Tax (Senior Vice President Tax) directly report to the CFO of Deutsche Telekom. Like for example Treasury, Accounting and Legal, Group Tax is part of the Deutsche Telekom Group’s central functions and located within the Group’s parent company Deutsche Telekom AG. The director of Group Tax reports on specific issues on a case-by-case basis, for example per e-mail, as well as monthly in a personal exchange directly with the CFO of Deutsche Telekom and also participates in regular weekly meetings of the finance function steering committee (Senior Leadership Team Finance), in the course of which aspects of Group taxes are addressed.

The director Group Tax is also a member of the executive leadership circles of the top 250 and the top 50 business leaders of the Deutsche Telekom Group, which meet for example annually at exchange meetings over the course of several days, in particular also to ensure a best possible information flow and networking between the business leaders as well as the headquarters’ central functions of Deutsche Telekom Group.

Group Tax is organized in several sub-departments, which are managed by a respective leadership function directly reporting to the head of Group Tax. In addition to the departments for wage taxes and exercise taxes there are departments for profit taxes’ reporting including tax compliance (filing of tax declarations and support of tax audits) as well as for the tax advice and support of reorganizations and M&A transactions.

In the course of the establishment of a Tax Compliance Management System (Tax CMS) Group Tax has comprehensively defined and documented its responsibilities and processes as well as its approaches, guidelines and principles. Regular updates and controls are implemented. The Tax Compliance Management System was presented to the Deutsche Telekom management board. In addition, a Tax Risk Management Report is regularly set up, which identifies, evaluates and documents tax risks as well as suggests measures for risk mitigation.

In addition to Group Tax, various group companies have also their own, sometimes very large tax departments, which ensure the tax compliance in the individual countries and constitute the local points of contact for the respective local tax administrations. This applies in particular with respect to larger “natcos” of Deutsche Telekom Group, some of which are themselves publicly listed stock corporations with outside shareholders. Group Tax works trust-based with all such local tax departments, for example through calls dealing with specific issues, through monthly alignment calls and working visits at the respective company and annual or bi-yearly meetings of the tax function of Deutsche Telekom Group as a whole over the course of several days. Some of such local tax departments have – in addition to the groupwide aligned three pillar tax strategy - their own further guidelines, which are aligned with local requirements.

Establishment of a detailed Tax Strategy, respective resolution and updates
The present detailed Tax Strategy was set up by Group Tax and presented to the CFO of Deutsche Telekom as well as resolved upon by the CFO and also the management board of Deutsche Telekom as a whole. The CFO resolves on respective updates, last on 28 January 2022. A need for revision is determined upon specific occasions as well as regularly. Major changes of the Tax Strategy would be resolved upon by the management board of Deutsche Telekom as a whole.

Our Group Tax’ working principles
In line with our tax policy guidelines, compliance with all applicable tax laws and regulations is the top priority for Group Tax. In this, we consider not only the letter of the law, but also its spirit, reason, and purpose, as well as its wider context.

Compliance with all applicable tax laws and regulations concerning all Group activities is a compulsory requirement for Deutsche Telekom Group as a whole. The respective first pillar of the Tax Strategy of Deutsche Telekom is of the utmost importance, addressed by the management board of Deutsche Telkom as a whole (“Tax Compliance – Complying with all Tax Requirements No Matter What (‘Correct Tax Numbers Always and Everywhere’)”, it applies to all group companies of Deutsche Telekom, i.e. such German and non-German group companies that are indirectly or directly majority-owned by Deutsche Telekom AG.

The Group Tax approach is as follows:

  • Determination of the relevant facts, the business, economic, financial, legal and other motivations and aspects
  • Development of viable, practical, and robust solutions in cooperation with the other parties involved
  • Formulation of sound tax analysis
  • Documentation of the facts and the tax positions taken including the respective analysis
  • Use of efficient processes to correctly comply with tax declaration obligations
  • Engagement in a close, trust-based working relationship with the tax authorities
  • If necessary, assertion of the own tax opinion with the finance courts

A great deal of emphasis is placed on the professional and personal qualifications of employees. Many Group Tax employees are qualified as tax advisors and/or lawyers, as well as having additional relevant qualifications such as studies abroad or other academic titles; the majority of them have a degree in business studies or law. The regular training of employees is ensured by means of internal and external, regular and ad hoc seminars, meetings, conferences, and through other forms of knowledge sharing. Employees are involved in a wide range of relevant working groups and committees of industry associations to ensure that the latest topics and developments are addressed. Appropriate specialization and coverage of special issues ensure the necessary specialist knowledge. Development measures not addressing the expert qualifications, in particular regarding team building, include for example keynotes and workshops with respect to inter alia energy management, attitude, leadership as well as working environment, collaboration and communication.

To the extent necessary or appropriate, Group Tax makes use of the external tax expertise of legal and tax advisors worldwide. Budget restrictions practically do not exist in this respect in view of the financial relevance respectively the importance of compliance. Nevertheless, the efficient application of resources is of course a major focus of Group Tax as well.

In the context of digitalization, special IT tools are increasingly being created for and by Group Tax to support the efficient documentation of tax-relevant facts and compliance with tax obligations as well as to create the best possible working environment for the tax authorities for tax audits. In addition to the so-called VAT Validation Tool, which already for many years is successfully ensuring the VAT compliance in the German part of the Group, this concerns in particular the TEO - tax everything online IT-solution, developed by Group Tax in collaboration with an IT consultancy firm specialising in tax IT-development and used within Deutsche Telekom Group as well as by several further groups of companies on a licence basis (“TEO User-Group”), which also furthers the professional exchange. In addition to the Group’s tax reporting, TEO massively supports the project regarding the carrying out of a timely tax audit (“zeitnahe Betriebsprüfung”) agreed upon between Deutsche Telekom in Germany and the German tax administration, aiming at a tax audit and a final assessment regarding a relevant tax year already in the subsequent year.

The project of the timely tax audit enables a significant reduction of tax risks within the German part of Deutsche Telekom Group through leaving only one or two “open” tax years, which are still subject to tax audit (filing of all tax declarations as a rule in the first half of the subsequent year, commencement of the tax audit in the second half of such subsequent year, conclusion of the tax audit through the final audit meeting and issuance of the final tax assessments three to four quarters subsequently).

Accurately analysing the tax situation and providing support to ensure the tax efficiency of issues and projects requires a precise and profound knowledge of the business, economic, and financial issues as well as their legal and other aspects and relevant general conditions. We therefore also focus on ensuring a general closeness to the business units and to other relevant departments in the Group. To this end, special opportunities have been created in the Group Tax department in particular for short secondments and other opportunities for exchange (for example so-called “Tax Days Off” which are spent in another part of the Group), in addition to the other usual sources of networking and information.

Group Tax is involved in the decision-making process for all of the Group’s significant measures. In this context, the relevant facts are comprehensively determined and considered for the tax analysis. In the event of multiple suitable alternatives to achieve the same purpose, Group Tax will recommend the most tax-efficient option. Of course, tax aspects are not usually the deciding factor, rather the process weighs up all relevant aspects. To prepare for decisions, Group Tax works efficiently with all other departments involved.

Tax analyses are carried out, for example, with respect to:

  • the development of new and amendment of existing business, production, and sales models, the development of new markets
  • the acquisition and disposal of shares, business operations, entities, and groups of companies
  • corporate restructurings and other restructuring measures, as well as changes in the relevant internal processes
  • financings
  • other relevant projects and transactions

Our responsible approach to tax
It is the aim of Group Tax to facilitate the business and value creation in the Group as much as possible, not to hinder it, and to make a constructive contribution to the formulation of solutions and approaches that are as robust and practicable as possible from a tax perspective through a deep knowledge of the Group’s business activities and processes. Group Tax is committed to creating value for the shareholders of Deutsche Telekom by means of sustainable tax efficiency and by contributing to the joint success of the Group. As such, the decisions and approaches taken by Group Tax also take into account the consequences for business activities and the Group’s internal processes as well as any other implications, for example, for the reputation, profile, or policies of the Group.

Group Tax endeavours to minimize disputes with the tax authorities, and to limit such disputes to instances where its positions are supported by the law.
We seek to rule out or minimize in advance tax risks wherever possible and reasonable on a case-by-case basis by obtaining binding statements from the competent tax authorities. Also due to the already-mentioned project regarding the timely tax audit with the German tax administration, potential tax risks regarding the German part of the Group are in any case as a rule limited to one to two open tax years (so-called “all in one year” tax audit process).

Group Tax addresses its collective responsibility for society as a whole also by supporting the law-making activity of the tax legislator. In particular, the intention is to point to practical taxation consequences for businesses as well as to avoid systemic contradictions in values within the state fiscal framework, in both cases based on the practical experience and expert knowledge of Group Tax and as a rule channelled through business associations, but also through scientific work.


Approach to transfer prices, publication of tax information and transparency as well as to tax structures and tax risks

Transfer pricing
For transfer pricing matters, the Deutsche Telekom Group has a Transfer Pricing Guideline, which applies the current arm’s length principle. The Transfer Pricing Guideline is implemented on a groupwide basis and binding. It provides the employees of Deutsche Telekom with information regarding the tax requirements with respect to the setting of prices for intra-group supplies and gives respective instructions. We ensure through appropriate processes that the arm’s length principle is taken into account when agreeing the terms and conditions of intragroup relationships. In this respect the implementation of the Transfer Pricing Guideline is secured by transfer pricing experts of Group Tax through the carrying out of expert communication exchanges with and the monitoring of business units.

Publication of tax information and transparency
Deutsche Telekom implements comprehensive transparency, in particular towards the local tax administrations, but also towards the public.

The Deutsche Telekom Group is implementing the reporting obligations arising in connection with the BEPS developments, including country-by-country reporting. A project team was set up early on and a specific IT tool developed for this purpose. The respective information and documents are sent to the competent tax authorities on time.

Our published annual reports as well as further publications and statements that are accessible to the general public contain extensive data and other information regarding the tax framework and the tax circumstances of the Group, also with respect to our segments, and in this context also relevant country-related information concerning some jurisdictions of particular relevance, including respective derivations and explanations; in order to avoid repetition here we would like to make full reference thereto.

In addition, various of our group companies are themselves organised as stock corporations, the shares of which are as such also publicly traded at a number of stock exchanges and which have outside shareholders not within Deutsche Telekom Group respectively free float. Therefore, such group companies comply themselves also with comprehensive reporting requirements regarding tax according to the regulations applicable to them, including inter alia any capital markets regulations. Reference is made to such specific further publications.

In addition, Deutsche Telekom publishes further information with respect to taxes at Deutsche Telekom, for example country-by-country reporting and additional explanations regarding tax rates, which can be accessed via the chapter on taxes of the CR report. This annually includes the so-called Total Tax Contribution of the major telecommunication companies of the Deutsche Telekom Group, which information has been assembled by Deutsche Telekom for several years now in order to determine and make visible the contributions of the respective entrepreneurial activities to public financing and finances. The determination of the Total Tax Contribution shall be continued also in future years, potentially with a further extended scope.

In the course of the project of the timely tax audit the German tax administration furthermore receives comprehensive information packages in agreed format in advance, and therefore a particularly high degree of early transparency is achieved prior to and in the course of the timely tax audit. This also supports the alignment with the tax authorities, in particular the local tax audit, regarding present respectively future sets of facts with the aim to achieve further increased efficiency, specifically regarding the subsequent tax audit.

Approach to tax structures and tax risks
Due to the high importance of local telecommunication infrastructure as well as local permits for the carrying out of respective activities our core business is from the outset specifically local and as a rule also addressed by relevant tax laws and regulations. Therefore, the locally generated added value is as a rule also locally taxed. Deutsche Telekom Group has less of an international business model, but rather a multi-national one: The customers are served locally by local group companies with local infrastructure.

In accordance with our profile as an international telecommunications group, we have business activities in a large number of countries. Generally, we conduct local business activities through subsidiaries in the respective country. As an international group, Deutsche Telekom aims to set our activities on an international footing and not to concentrate them entirely in Germany, so as to further good international cooperation and partnerships within the Group.

For example, in the Netherlands, which are, respectively were, a key location for the Deutsche Telekom Group, we conduct, respectively conducted, substantial business activities through a number of subsidiaries. Among other things, T-Systems has a presence there, as in many other countries, through a Dutch subsidiary, which is responsible for local activities. For many years we were extensively involved in mobile communications there, through the subsidiary T-Mobile Netherlands, which had additionally taken over the activities of the Dutch Orange and Tele2 group. Due to the Netherlands being a market-standard jurisdiction for this, we already established a Group financing company as well as our international holding company there very many years ago.
From a tax perspective, inappropriate profit transfers are prevented from the outset by applying the arm’s length principle. Furthermore, the shift of the taxable basis out of Germany is impossible due to the applicability of the tax provisions regarding the German controlled foreign company rules and other rules and regulations.

There is no artificial shifting of created value to low-tax countries.

We do not have any artificial special purpose entities without economic substance in low-tax countries.

There is no use of jurisdictions without transparency or of so-called "tax havens" for tax avoidance.

We do not operate any aggressive tax structures without economic substance exclusively for tax avoidance.

Group Tax engages in robust tax planning based on a comprehensive analysis of the tax laws and regulations. Substantial risks due to tax uncertainties regarding the application of the law are, to the extent possible and sensible, addressed through binding rulings or similar pre-alignments with the tax administration. Due to the timely tax audit regarding the German part of the Group, tax risks in that jurisdiction are as a rule limited to only a few open tax years. In addition, a Tax Risk Management Report is regularly setup in order to identify, evaluate and document tax risks as well as to point to steps for risk mitigation.

In accordance with the obligation to generate value for the Deutsche Telekom Group and its shareholders, Group Tax is also subject to efficient cost control.

Tax governance and control framework, risk management
Proper implementation of the detailed Tax Strategy is ensured by Group Tax. Responsible is the head of Group Tax who directly reports to the CFO of Deutsche Telekom.

Tax participates in the general governance and control framework as well as in the general risk management of Deutsche Telekom. This applies with respect to regular requests regarding risk reporting, regular risk documentation and evaluation, regular updates of important tax parameters, regular internal controls, regular internal revision audits, regular and comprehensive audit activities of external auditors, regular succession planning processes etc. The tax procedures, respective controls and the risk management are therefore comprehensively integrated into the respective infrastructure of Deutsche Telekom, to which reference is hereby made. This applies also with respect to the AskMe- and TellMe-portals of Deutsche Telekom, the centralized points of contact of the Group for any questions regarding compliance and for any, also anonymous, reporting of (potential) compliance issues (so-called whistleblowing).

Group Tax is in constant and close exchange with all relevant business units and departments of the Group in order to ensure the correct tax evaluation of the activities and to monitor the compliance with tax rules and regulations. In this respect, a multitude of regular meetings and alignment processes is established. Group Tax also conducts on a case-by-case basis specific trainings and workshops regarding relevant tax topics within and outside Group Tax. Group tax moreover publishes relevant tax information in the intranet. Consecutive tax knowhow trainings within Group Tax shall result in the identification by all members of Group Tax of risks, chances and respective topics for further analysis, which are recorded in respective documentations. Processes to be carried out in regular intervals within Group Tax result in the recording of and dealing with potential tax risks, this through the application of IT-solutions specifically developed for such purpose.

In addition, within the framework of its Tax Compliance Management System Group Tax comprehensively revises and controls its procedures and potential risks. This includes a description of all processes with responsibilities, risk assessments and measures for risk mitigation etc. Furthermore, regularly a Tax Risk Management Report is compiled, which identifies, evaluates and documents tax risks as well as addresses measures for risk mitigation.

Group Tax is furthermore represented in numerous associations and organizations addressing tax questions and therefore thus receives up-to-date information on relevant tax topics and participates in respective exchanges. A focus is laid on initiatives regarding the advancing digitalization of tax and tax-relevant processes with the aim of further enhancing the respective procedures.

Inclusion of stakeholders and management of stakeholders’ tax concerns
Deutsche Telekom has established general processes regarding enquiries by stakeholders, in particular by shareholders respectively investors, as well as all other interested parties and the public. This includes enquiries relating to tax. Through such channels, all enquiries with a tax aspect reach Group Tax and are dealt with by Group Tax within a short period of time.

Group Tax attaches the utmost importance to a trust-based, transparent cooperation of integrity with the competent tax authorities. Within the framework of the project regarding the timely audit the German tax authorities receive agreed information packages in advance using specifically developed IT tools for such purpose, which enable the tax authorities to carry out comprehensive audit activities. In the course of numerous regular as well as specific meetings and workshops a close exchange regarding a great number of issues and relevant questions takes place. Audit findings are dealt with by Group Tax within a short period of time.

In addition, Group Tax participates extensively in tax expert discussions within the framework of a number of industry organizations and tax working groups of various institutions. Members of Group Tax contribute as speakers or panelists to expert seminars and conferences and thereby receive also extensive up-to-date information regarding relevant topics. Furthermore, direct exchanges on relevant tax issues, with a focus on practicability, take place with tax authorities, including representatives of the highest tax administration bodies. These exchanges concern on the one hand potential consequences of possible tax law changes, the practicability and the consistency with the tax legislator’s aims and purposes, on the other hand tax expert contributions regarding the development of tax laws on the international level and respective practical consequences. One focus of Group Tax is to find possibilities of a further digitalization of tax-relevant processes; in this respect Group Tax is involved with respective institutions.

Group Tax is award-winning
Group Tax won the renowned Juve Award for Best Inhouse Tax Team 2016 for its special efforts with regard to its good working relationship with the tax authorities and its efficient digitalization of tax processes, as well as its participation in the special project for a timely tax audit.

Social commitment: Pro-bono consulting
Deutsche Telekom welcomes and promotes the social engagement of its employees. As such, it expressly supports Group Tax staff who want to contribute their expertise in the form of pro-bono consultations for charitable purposes. The Corporate Responsibility unit provides them with help, where necessary, in finding suitable opportunities for such work. A framework policy from 2012 governs the exact approach for this kind of pro-bono work – e.g., the drafting of articles of association that satisfy public benefit criteria for tax purposes – by individual Group Tax employees.