Which payment flows are reported on?

Selection of sectors

The EITI standard requires all major payment flows from a country’s extractive sector to be taken into account. The first step is to identify the sectors to be included. In various meetings, the multi-stakeholder group (MSG) discussed which sectors of the extraction of natural resources should be included in the present German D-EITI report. In line with previous years, the following sectors have been adopted by the D-EITI MSG:

• Lignite
• Crude oil and natural gas
• Potash and salts
• Quarried natural resources

The mining of hard coal in Germany ended at the end of 2018. As a result, the sector is not included in the reporting.

Selection of companies

After defining the sectors, the second step is to identify the companies to be included in the D-EITI reporting. The EITI standard does not contain any direct requirements for the process of selecting these companies. The MSG has therefore decided to follow the guidelines for the preparation of (group) payment reports.¹

Under Section 341q et seq. of the German Commercial Code (HGB), companies in the extractive industries are obliged, under certain conditions, to prepare and publish a (group) payment report. This obligation is based on criteria such as the company’s registered office, legal form, size and activity of the company. The report shows which payments were made by the respective companies to government agencies during the reporting period (see details under Public reports).

The chosen approach is largely based on the EITI’s objective of creating transparency on government revenues from extractive industries (extractive sector) and disclosing all material payment flows between companies and government agencies. Payment flows are considered material if their omission or misrepresentation could significantly impair the completeness of EITI reporting (according to EITI requirement 4.1b). The individual criteria are presented separately below.

Sector

The basis for the identification of the companies is the activity within the extractive industry. The current classifications of companies according to NACE Revision 2 are applied. They are based on Regulation (EC) No. 1893/2006 of 20 December 2006. This Regulation lays down detailed rules for establishing the statistical classification of economic activities. According to this, companies are considered to be “active” in the extractive industries if they are assigned to the following sub-sections:

• Sub-section 05: Coal mining
• Sub-section 06: Extraction of crude oil and natural gas
• Sub-section 07: Ore mining
• Sub-section 08: Quarrying, other mining

A detailed list can be found at the end of this section.

Size categories of companies

In addition to the sector, the criteria for the identification of companies are initially based on the criteria for “large” companies in accordance with Section 267 para. 3 HGB. For the 2024 reporting year, at least two of the three criteria must be met on at least two consecutive reporting dates²:

• Balance sheet total more than EUR 20 million
• Sales revenues more than EUR 40 million
• More than 250 employees on average per year

Infection theory

In addition to the legal obligation to prepare payment reports for “large” companies, there is also a group reporting obligation for parent companies, provided that at least one subsidiary is active in the extractive sector. The size of the subsidiary does not matter. This principle is known as “infection theory”. The activity of a subsidiary in the extractive sector may trigger a reporting obligation for the entire parent company. This approach has been taken into account in the identification of companies, thus broadening the range of companies concerned.

Activity test

Only companies that actively extract natural resources in Germany should be considered. Companies that extract natural resources exclusively abroad, as well as companies that focus on storage or act as service providers, are not considered.

The selection of companies is thus based on a combination of company size and economic activity in the extractive sector.

Selection of payment flows

Payment flows of the extractive sector are to be taken into account in accordance with the EITI standard if they are to be regarded as material for a complete presentation of corporate payments and government revenues. The MSG has decided to collect the subsequent payment flows as part of the ninth German D-EITI report for 2024 (see also the comments on Payments incurred). Compared to the eighth reporting, the existing payment flows have been supplemented by the EU energy crisis contribution.

Corporate tax

In Germany, corporate tax is the central income tax of corporations (essentially relating to the legal forms GmbH, AG and SE). It does not constitute a specific tax for companies in the extractive sector; instead, it covers all corporations resident or operating in the national territory. According to the Corporation Tax Act (KStG), the taxable income is the basis of corporate tax. This is derived from the annual result under commercial law, taking tax modifications into account. If a company is active in both the extractive and non-extractive sectors, the clear allocation of the corporate tax payable in the extractive sector is complex. The background to this is that the corporate tax is calculated on the basis of the total taxable income (see comments on Payments incurred).

For this reason, the corporate tax is classified as a non-project payment in the payment reports. The payments for corporate tax can be split between activities within and outside the extractive sector by the companies in the payment report on an optional basis, if an appropriate classification is reliably possible. This commercial practice is followed for D-EITI reporting purposes.

Trade tax

Companies operating on a commercial basis are subject to trade tax in Germany irrespective of their legal form. Trade tax is levied on business income, which reflects the earning potential of the business. The assessment procedure is two-stage. The municipalities in which the respective company has operating facilities are entitled to levy the tax; an operating facility may also extend across several municipalities. The sole payees for trade tax payments are the individual municipalities. In this respect, the federal structure of the state is reflected in Germany (see also comments on Payments incurred).

The following figure shows a simplified calculation scheme for determining the trade tax:

Profit from commercial operations (Section 7 Trade Tax Act [GewStG])

+ additions (Section 8 GewStG) / – reductions (Section 9 GewStG)

= Trade income (Section 10 GewStG)

x basic federal rate amounting to 3.5% (Section 11 II GewStG)

= taxable amount (Section 11 I GewStG)

x individual tax factor of the municipality (Section 16 GewStG)

= trade tax

The tax authorities calculate the taxable amount, which is obtained by multiplying the trade income by a uniform rate of 3.5%. The trade income is based on the basis of assessment of income or corporate tax, taking into account the rules of the Trade Tax Act (essentially additions and reductions).

The taxable amount is transmitted by the tax authorities to the local government in which the company is located. If the company has several operating facilities of if an operating facility extends over several municipalities, the tax authorities also allocate the taxable amount among the municipalities according to a distribution key determined by law.

On the basis of the preceding administrative procedure, the respective municipality determines the trade tax to be assessed. The taxable amount is multiplied by the municipality-specific tax factor. The tax factor varies from municipality to municipality, but is at least 200%. The elected representatives of the respective municipal council are responsible for determining the tax factor.

This two-stage assessment process is followed by the collection process (the actual payment processing). This is done exclusively at municipal level.

Special features of corporate and trade tax

The analysis of data collection has shown that tax payments play a special role in certain parent-subsidiary structures and in the context of tax groups. In order to be able to interpret the reported payments of corporate tax and trade tax better, the following information is provided on the special features of parent-subsidiary constellations and tax groups.

Recording of tax payments in certain parent-subsidiary constellations​

In the German SME sector, partnerships, especially GmbH & Co. KG, have traditionally played an important role. Partnerships are subject to trade tax, but not to corporate tax. The corporate tax is rather only levied at the level of the shareholders – and only if the shareholder itself is a corporation.

A partnership is therefore not a separate taxable entity for corporate tax purposes. The income generated in the company is attributed to the shareholders for tax purposes and is taxed together with their other income. This makes the German business and tax system very different from other countries.

This specificity also affects the recording of tax payments (trade and corporate tax) in the context of the D-EITI reporting, in particular in the case of group structures with a subsidiary partnership and a parent corporation.

If both the parent corporation and the subsidiary partnership are active in the extractive sector, all relevant tax payments are recorded: trade tax of the subsidiary and parent company as well as corporate tax at the parent company level. If, on the other hand, only a few companies are active in the extractive sector, this results in discrepancies in the recorded tax base. Consequently, not all or too many tax payments to government agencies are recorded:

Case 1:
For example, if the parent company is active in the extractive sector but the subsidiary partnership is not, the reported corporate tax payments of the parent company also include the results of the subsidiary. This is because the corporate tax of the subsidiary partnership is levied at the level of the parent company (the partner). In this case, under commercial law, it is possible – but not mandatory – to allocate corporate tax payments appropriately between activities within and outside the extractive sector.

Case 2:
If, conversely, the subsidiary partnership is active in the extractive sector but the parent company is not, the D-EITI reporting covers only the subsidiary’s trade tax payments, but not (pro rata) the parent corporate tax on the subsidiary’s profits. Thus, they would be not be taken into account.

The above special features are based on the German tax system. The MSG has decided to follow the tax law perspective outlined above for EITI purposes as well.

Recording of tax payments in cases of tax groups​

German tax law provides for specific special rules for the treatment of corporate groups with regard to trade tax and corporate tax. Under certain conditions, a tax group may exist. A tax group is a tax structure in which two or more legally independent companies are treated as a single entity for tax purposes. This does not affect their legal independence.³

In such constellations, the incorporated companies (subsidiaries) generally do not make any tax payments. On the contrary, the income of all the companies included in the tax group is taxed exclusively via the parent company. The parent company thus pays taxes on its own income and the income of the subsidiaries. If the various subsidiaries also carry out activities outside the extractive sector, there may be difficulties in allocating tax payments.

For the purposes of the commercial (group) payment report, the following differentiation is therefore made at the level of the parent company:

• If, in accordance with Section 341 r No. 1 HGB, the tax group is primarily active in the extractive sector, a report may be made on the total amount of taxes paid by the parent company. There is no obligation to apportion the tax payments to activities within or outside of the scope of Section 341 r No. 1 HGB.
• If, in accordance with Section 341 r No. 1 HGB, the tax group is not primarily active in the extractive sector, the tax payments of the parent company may be distributed on a voluntary basis. Otherwise, the amount of tax paid by the parent company is omitted.

The results of the collection of payments demonstrate the high practical importance of tax groups among the companies included in the reporting (see the presentation of payments made under Payment flows).

For the recording of tax payments within the scope of tax groups, the MSG has decided to follow the commercial perspective for EITI purposes.

Mine site and extraction royalties in accordance with the Federal Mining Act (Bundesberggesetz)

In Germany, the mine site and extraction royalties (Sections 30, 31 BBergG) are levied as a specific charge for “free-to-mine natural resources” on the basis of the Federal Mining Act (for further details, see also comments on Payments incurred).

According to feedback from participating companies and the disclosed (group) payment reports, payments of the mine site royalties exceed the amount of EUR 100,000 only slightly in the case of Vermilion Energy Germany GmbH & Co. KG, at EUR 102,759 (see section “Materiality of payments”). Due to this minor significance and the materiality approach of the EITI standard, the mine site and extraction royalties are reported below as a shared payment flow.

Lease payments

In addition to the mine site and extraction royalties, no other consideration is levied in Germany for prospecting for and extracting free-to-mine mineral resources. However, lease payments to government agencies in connection with the extraction of mineral resources which are not free to mine may be incurred, in particular in the area of quarried natural resources. This is the case when government agencies, as landowners, conclude private contracts for the extraction of natural resources with companies in the extractive industries. Such contractual arrangements may include fixed payments or payments that depend on the quantity extracted, or a combination of both variants.

Recipients of lease payments are the government agencies that have concluded contractual arrangements with the company (e.g. cities, municipalities, districts or offices). The content and number of contracts are not documented centrally (see comments on Payments incurred).

This information can usually only be provided by the participating companies themselves as part of the data collection process. In the context of quality assurance, there are additional challenges, since there is no central organisational unit through which the individual government agencies can be contacted.

Lease payments by companies to government agencies are therefore recorded unchanged from the previous D-EITI reporting as part of the data collection, but are not subject to separate quality assurance. The total amount of lease payments, which are generally collected via the local authorities’ tax offices, plays only a minor role for the 2024 reporting year, in line with the most recent D-EITI reports, compared to the total amount of reported payments.

Payments for infrastructure improvement

The payment flow corresponds to the legal regulation of the (group) payment report in Section 341 r No. 3 g HGB. The reported payments include corporate initiatives related to restoration expenses and contributions to support municipal investments, educational institutions, and the construction or maintenance of public infrastructure. It should be noted that these payments may arise both from legal or contractual obligations (e.g. on the basis of the operating licence agreement) and from voluntary payments based, for example, on private contracts for individual projects with government agencies. The latter include, among other things, the compensation of additional administrative burdens due to mining or services related to the construction and maintenance of local public infrastructure.

The reported payments for the reporting year 2024 are, by analogy with the previous D-EITI reporting, exclusively attributable to companies from the lignite extraction sector, so that this is not a cross-sectoral payment flow.

The content and composition of the reported payments were analysed in more detail by the Independent Administrator in the first two D-EITI reports at the request of the MSG and the results were presented to the MSG. The results showed a high degree of heterogeneity in the recorded payments as a result of the variety of measures taken in the context of offsetting impacts from the respective lignite extraction company. Information on the recipients of the payments and their purpose can be found in some cases in the (group) payment reports of the companies.

Due to this heterogeneity, the payments are recorded as part of the data collection, but are not subject to separate quality assurance. In line with previous years, payments for the improvement of infrastructure have been made to two companies in the lignite sector. The total amount is almost at the level of the previous year.

EU energy crisis contribution

The EU energy crisis contribution is a temporary special levy introduced on the basis of Chapter III of Regulation (EU) 2022/1854 in response to the sharp increases in energy prices in 2022 and 2023. The goal of this measure is to temporarily skim off excess profits from companies in the fossil energy sector and use the funds raised to finance relief measures. In Germany, this was implemented through the EU Energy Crisis Contribution Act (EU-EnergieKBG).

Companies that generate at least 75 percent of their revenue from certain extraction or mining activities are concerned.⁴ Classification is based on the NACE classification of economic activities. With respect to the sectors defined according to the D-EITI reporting, the companies are in the following sectors:

• 1 Extraction of crude oil
• 2 Extraction of natural gas

According to the list of questions and answers of the Federal Central Tax Office (BZSt), companies that extract lignite do not fall within the scope of the EU energy crisis contribution.⁵

The taxpayer is “every company” (Section 2(1) EU-EnergieKBG). This means that even within a tax group, each individual company is an independent payer of the EU energy crisis contribution.⁶

The EU energy crisis contribution is a registration tax (see Quality assurance procedure for details). This means that the companies concerned must calculate the contribution on their own responsibility, declare it on time and pay it within the time limits prescribed by law. The BZSt is responsible for the management of the EU energy crisis contribution.

The basis of assessment of the EU energy crisis contribution results from the positive difference between the tax profit of the relevant assessment period and the average profit of those comparable years after 31 December 2017, increased by 20 percent. This model ensures that only those profits that significantly exceed the usual and economically expected level are recorded and are therefore considered to be exceptional excess profits.

Structuring of the project concept

The EITI standard provides for reporting at project level (EITI requirement 4.7). The MSG has decided to implement the content and scope of the project concept analogously to the application of the legal regulation of Section 341 r No. 5 HGB. Payments to government agencies are then generally reported per project if the reporting company has operated more than one project during the reporting period. Section 341 r No. 5 HGB specifies the concept of a project (“project level”) as follows:

A project is the grouping of operational activities which form the basis for the payment obligations towards a government agency and are based on

• a contract, licence, rental contract, concession or similar legal agreement or
• a set of operationally or geographically associated contracts, licenses, rental contracts or concessions or related agreements with a government agency which essentially provide for similar conditions.

In general, project-related reporting is not possible for the cash flows corporate tax, trade tax and EU energy crisis contribution. This is because the cash flows are based on the company’s taxable income and not on any of the legal agreements specified in Section 341 r No. 5 HGB.

The payment obligations exist for the mine site and extraction royalties at the level of the federal states and are defined accordingly as a project concept. In addition, by specifying the corresponding licensed/approved field within the scope of the data reporting, a further breakdown of the information can be ensured below the level of payment obligations to a government agency defined as “project level”. As regards the mine site royalties, no payment at the licensed/approved field level exceeds the materiality threshold of EUR 100,000.

With regard to lease payments and payments for the improvement of infrastructure, the data collection templates also provide for a further distribution of payments.

Materiality of payments

The commercial regulations for the preparation of (group) payment reports provide that the companies concerned must report payments from a reporting year starting from an amount of EUR 100,000 per government agency (see Section 341 t para. 4 HGB). Accordingly, conversely, payments to a government agency of less than EUR 100,000 do not have to be declared during the reporting period.

The MSG has decided to also adopt these regulations for the ninth D-EITI report. Payments per government agency that do not reach the amount of EUR 100,000 in the reporting year are only identified by companies in the course of data collection by means of a notice, without any indication of the amount. If companies nevertheless provide voluntary figures, these payments will be taken into account accordingly.

¹ These are based on the requirements of the EU Balance Sheet Directive 2013/34/EU of 26 June 2013, which was transposed into German law by the BilRUG at the end of 2015. The stated objectives and specified payment flows of the EITI initiative are largely identical as regards the content. The EU Balance Sheet Directive even explicitly refers, in the recitals in paragraphs 44 and 45, to the fact that this is intended to assist in the implementation of the EITI.

² The thresholds for balance sheet total and turnover of Section 267 HGB (German Commercial Code) were raised by 25% in the context of the “Second Act amending the DWD Act and commercial law provisions”, announced on 16 April 2024 in the Federal Law Gazette.

³ Detailed explanations on the subject of tax groups can be found, for example, at https://www.steuerkurse.de/koerperschaftsteuer-vertiefung/koerperschaftsteuerliche-organschaft.html

⁴ Acc. to section 2(1) EU-EnergieKBG, these are economic activities in the areas of extraction, mining, oil refining or production of coking plant products.

⁵ According to the list of questions and answers of the BZSt, the extraction of lignite is not covered by Chapter III of Regulation (EU) 2022/1854 (Article 14 et seq.), but by Chapter II (Article 7(1)), which concerns measures relating to the electricity market.

⁶ This and further information can be found in the Questions and answers on the EU Energy Crisis Contribution Act from the Federal Central Tax Office