Service and financial relationship in DB Group
Within DB Group, because of strong operational interconnections and dependencies, there are service and financial relationships between the management holding company DB AG and the individual business units, as well as between business units.
These can be organized into four groups:
- Operational business relationships between two companies, which may arise through the use of infrastructure, such as when DB Regio AG uses the rail network of DB Netz AG, for which it pays train-path usage fees.
- Business relationships with Group management: DB AG is responsible for providing services for the operating companies such as central procurement, which organizes and controls the procurement process for trains.
- Group financing: DB AG performs and consolidates the financing function in DB Group. In this context, DB AG obtains funds on the capital market through its financing subsidiary Deutsche Bahn Finance GmbH (DB Finance) and transfers these funds as loans to the Group companies.
- Domination and profit and loss transfer agreements: In Germany, domination and profit and loss transfer agreements are used for the formation of a consolidated tax group that allows companies to offset tax losses against profits. In DB Group, the company ultimately subject to tax in Germany is DB AG.
The arm’s length principle serves as the fundamental characteristic of business relationships. This means that compensation is always based on market prices. In DB Group this applies to charges for operational business relationships, service units and Group financing. Intra-Group customers pay the same fees for utilizing train-paths as non-Group customers. The prices of intra-Group services are reviewed regularly on the basis of market analyses to ensure that they are in line with the market. The terms of financing transactions are based on prevailing market conditions in the financial and capital markets.
Group functions perform controlling and monitoring functions. These services are generally not charged. By contrast, the services of the service units are generally charged to the intra-Group recipients of the service, in relation to the service provided.
The reasons and motivation for aligning the costs of business relationships in DB Group with market conditions are as follows:
- A value-based corporate management approach can only be successful if it is embedded at all levels in DB Group. This, in turn, can only be achieved through business relationships at fair market conditions. Success and failure must be transparent in order to facilitate economic control.
- The RIC are legally required to provide their services without discrimination. The Federal Network Agency (Bundesnetzagentur; BNetzA) assesses whether prices are in line with the market. Prices are transparent for everyone.
- Alignment of business relationships with market conditions is also both necessary and stipulated for tax reasons and from the perspective of minority shareholders.
The effects of domination and profit and loss transfer agreements within DB Group on profits and payments are not qualified as business relationships, but are a consequence of DB Group’s status as a domestic contract group and the associated rights and obligations of all the incorporated domestic companies.