FRANKFURT—The merger of German auto makers Volkswagen AG and Porsche Automobil Holding SE moved a step closer Friday after Porsche said it will make disputed tax and interest payments of about €626 million ($856.7 million) on stock-option transactions, reported The Wall Street Journal.

Porsche had previously contested the tax payment on the stock options, as the company considered the transactions as tax-free profits and tax-deductible losses, as detailed in Porsche's fiscal 2010 annual report. However, Porsche earmarked €1.35 billion in provisions pending the outcome of the dispute, which will now be dissolved in order to make the payment.

Following the €626 million payment, the remaining provision of €719 million will be dissolved with an effect on profit, but neutral in terms of liquidity, Porsche said Friday. The dissolution of the provisions won't lead to a further tax expense, the company added.

Last month, Porsche said the merger with Volkswagen, which was initially expected to be finalized in 2011, could be delayed until several legal and tax issues have been resolved. Porsche stressed at the time that a combination of the companies will proceed, with the sale of its core sports car operations to VW a possible alternative.

Porsche's owner families last month exercised their put option to sell the Austria-based sales and distribution business Porsche Holding Salzburg GmbH to Volkswagen for €3.3 billion. The sale was part of the complex merger plan with Volkswagen, which was signed last year after a power struggle spanning several years.

Porsche initially tried to take over its much larger German peer, but its debt ballooned when credit markets dried up and Porsche agreed to a merger under Volkswagen's leadership.

Legal disputes in Germany and the U.S., where numerous investment funds have brought Porsche to federal court claiming more than $2 billion in damages, remain a hurdle for the deal. The funds allege that Porsche misled investors during its attempted takeover of Volkswagen—a claim Porsche has denied.