The combined income tax rate in Germany as home country of the Deutsche Telekom ultimate parent company is 31.4% (Corporate Income Tax plus Solidarity Surcharge thereon, local Trade Tax).
Since the profits of the operating companies are subject to domestic corporate income tax rates which are different from country to country, the weighted average effective income tax rate (based on local profits) amounts to 26-27% (so-called “country mix” income tax rate).
In particular, the combined US tax rate (21% federal income tax rate plus approx. 4% local taxes) is with 25-26% significantly lower the than the German tax rate. The same holds true for numerous eastern European countries in which Deutsche Telekom operates, for instance Greece, Austria, Poland and Czech Republic as well as Slovakia.
The cash taxes paid by Deutsche Telekom group companies in 2022 amounted to € 0.9bn, based on profits before taxes according to IFRS accounting standards of €11.0bn.
The difference between the actually paid cash taxes 2022 (€0.9bn) and the income taxes which would have been due applying the country mix tax rate of 26-27% (€3.0bn) is far predominantly caused by so-called temporary differences in the US. Those temporary differences result particularly from accelerated tax depreciation enacted to foster domestic investments in local infrastructure (the so-called “bonus depreciation”). Tax-wise, depreciation and amortization of network investments (including spectrum) is allowed to be “frontloaded”, i.e. correspondingly there will be less tax depreciation and amortization amounts available (and more cash tax payments due) in future years (merely temporary effect). Opposing to this, temporary differences arising from the capitalization of R&D cost for tax purposes as well as temporarily non-tax deductible interest expenses had an increasing impact on taxable income of T-Mobile USA while they decreased consolidated IFRS income.
In Germany cash taxes actually paid are also below expected cash taxes applying the German rate to IFRS income, mainly because of tax exempt income resulting from the sale of shares in participations.
The abovementioned effects explain the difference between the cash taxes actually paid by Deutsche Telekom in 2022 and the tax due if applying the ordinary country mix tax rate of 26-27% on the profits before tax of all Deutsche Telekom group companies (€2.1bn delta in total). In future years, the cash tax payments of Deutsche Telekom will be correspondingly higher due to the predominantly merely temporary nature of such impacts, of course not taking into account potential future tax law regulations meant to foster more investments, for instance extending bonus depreciation in the US.
The remainder relates to also predominantly temporary impacts in various European countries, for instance use of tax loss carry forwards in Austria.