Cash Tax Rate Reconciliation Deutsche Telekom 2023

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 2023 amounted to € 1.31bn, based on profits before taxes according to IFRS accounting standards of €24,96bn (from continued and discontinued operations).

The difference between the actually paid cash taxes 2023 (€1,31bn) and the income taxes which would have been due applying the group tax rate of 31.4% (€7.84bn) is caused by so-called temporary differences, by the utilization of tax losses, tax free income from the sale of participations and income related to the deconsolidation of operations, far predominantly to be considered in the US and in Germany.

Temporary differences in the US result – among others – 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. Furthermore, the utilization of tax loss carryforwards does also contribute to a lower than to be expected cash income tax rate in the US.

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 and deconsolidation effects to be considered in the IFRS group financial statements (both especially related to the sale of the Tower Business).

The abovementioned effects explain the difference between the cash taxes actually paid by Deutsche Telekom in 2023 and the tax due if applying the ordinary group tax rate of 31.4% on the profits before tax of Deutsche Telekom Group (€6.5bn 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 or introducing a declining-balance depreciation in Germany.