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170 Management’s discussion and analysis

Financial Impact of Compliance Matters

The Company has conducted an analysis of the impact on the Company’s consoli-

dated ﬁ nancial statements of issues raised by allegations of violations of anti-

corruption legislation. As previously reported, within the former Com Group, the

Company’s other Groups and regional companies a number of Business Consul-

tant Agreements (BCAs) and similar sales-related arrangements have been identi-

ﬁ ed. The Company has identiﬁ ed a large volume of payments made in connection

with these contracts as well as other payments for which the Company has not

been able either to establish a valid business purpose or to clearly identify the

recipient. These payments raise concerns in particular under the Foreign Corrupt

Practices Act (FCPA) in the United States, anti-corruption legislation in Germany

and similar legislation in other countries. The payments identiﬁ ed were recorded

as deductible business expenses in prior periods in determining income tax provi-

sions. As previously reported, the Company’s investigation determined that cer-

tain of these payments were non-deductible under tax regulations of Germany

and other jurisdictions.

In ﬁ scal 2007, the Company substantially completed its analysis of the tax

deductibility of payments under the BCAs and other sales-related agreements

with third-party intermediaries identiﬁ ed at the former Com Group, the remain-

ing Groups and in regional companies. In ﬁ scal 2007, the Company also substan-

tially completed its risk-based analysis of cash and check payments at the former

Com Group, the Company’s other Groups and in regional companies, for which

limited documentation was available, and which may also raise concerns under

the FCPA and anti-corruption legislation in Germany and other countries.

The Company has accounted for income tax-related charges with respect to ﬁ s-

cal 2000-2006 and adjusted comparative amounts for ﬁ scal 2005 and 2006 as sum-

marized below:

¢

In October 2007, the Company reached a ﬁ nal settlement (tatsächliche Verständi-

gung) with the German tax authorities regarding the deductibility for tax pur-

poses of certain payments at the former Com Group at Siemens AG with respect

to ﬁ scal 2000-2006. Pursuant to the settlement, the Company’s income tax obli-

gation relating to payments in connection with BCAs, other sales-related agree-

ments with third-party intermediaries and other payments relating to the for-

mer Com Group at Siemens AG was determined to be €179 million. Payments of

approximately €449 million were determined to be non-deductible for tax pur-

poses. The Company also recorded interest charges of €12 million related to the

tax obligations.

¢

In October 2007, the German tax authorities provided the ﬁ ndings of the tax

audit relating to payments under BCAs and similar sales-related agreements

with third-party intermediaries by the Company’s German Non-Com Groups and

entities for ﬁ scal 2000-2005 in the course of a ﬁ nal audit meeting (Schlussbe-

sprechung). The Company accepted the assessment of the tax authorities. Based

on this assessment, the Company determined non-deductible payments relating

to ﬁ scal 2006 and considered this information in the income tax return for ﬁ scal

2006. Based on the above, the Company recorded income tax expenses of €264