Service and financial relationships within 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 service relationships between two companies which may arise through infrastructure utilization, such as when DB Regio AG uses train-paths for which it pays train-path usage fees.
• Service relationships with Group management: DB AG provides services to the operating companies, such as central procurement.
• Group financing: DB AG assumes and centralizes the financing function within DB Group. Within this framework, DB AG raises funds on the capital market and passes them on to Group companies in the form of loans.
• Domination and profit and loss transfer agreements: In Germany, domination and profit and loss transfer agreements are used to establish a consolidated tax group, which allows tax profits to be offset against tax losses. In DB Group, DB AG is the taxable company in Germany. As a result of the termination of the profit and loss transfer agreement and contract of domination in the previous year, DB Cargo AG is no longer part of DB Group’s tax group.

The at arm’s length principle is fundamental in the development of service relationships. This means that remuneration is always based on market prices. At DB Group, this applies to charges for operational service relationships, service entities and Group financing. Intra-Group customers pay the same train-path usage fees 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 money and capital markets. Governance functions perform controlling and monitoring roles. To the greatest possible extent, these services are offset through what are known as Group charges. Where possible, the services of the service entities are charged to the intra-Group recipients of the service, in relation to the service provided.

The reasons and motivation for aligning intra-Group service relationships 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 is contingent on service relationships at armʼs length conditions. Success and failure must be transparent in order to facilitate economic management.
• Rail infrastructure companies are legally required to provide their services without discrimination. The Federal Network Agency assesses whether or not the financial flows are clearly delineated and whether or not fees are in line with the market. Fees are transparent for everyone.
• Alignment of service relationships with market conditions is also both necessary and stipulated for tax reasons and from the perspective of minority shareholders of subsidiaries.

The effects on profits and cash flows resulting from the domination and profit and loss transfer agreements within DB Group are not service relationships, but rather a consequence of DB Group’s structure as a domestic contractual group and the associated rights and obligations of all domestic companies included therein.