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Rights granted abroad – Withholding tax due in Germany?

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Image of Gottfried Breuninger
Dr Gottfried Breuninger

Partner, German Head of Tax

Munich

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Ehret Michael
Dr Michael Ehret

Partner

Frankfurt am Main

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Mueller Magnus
Dr Magnus Müller

Partner

Munich

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Weber Heike
Dr Heike Weber

Partner

Frankfurt am Main

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Habermayr Christina
Christina Habermayr

Counsel

Munich

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Schade Dirk
Dr Dirk Schade

Counsel

Munich

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Spranger Tim
Tim Spranger

Counsel

Frankfurt am Main

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30 November 2020

Draft bill published on 19 November 2020 offers hope that an unnecessary tax discussion may be brought to an end

A German tax issue has been causing great uncertainty among international corporates since spring 2020: Are licence fees received under licence agreements concluded between foreign companies taxable in Germany if the right granted is listed in a public register in Germany, but no other links to Germany exist? In times dictated by the pandemic, German tax authorities appeared to have identified a (new) source of tax income, and despite strong criticism from across the legal press, they were unwilling to surrender it. In a Circular issued by the Federal Ministry of Finance (Bundesfinanzministerium; BMF) on 6 November 2020, the tax authorities still upheld their belief that the income was taxable in Germany. Shortly afterwards, however, the BMF made a surprising U-turn. In a draft bill (Referentenentwurf) published on 19 November 20201, the BMF now proposes amending the relevant tax provisions set out in section 49 (1) no. 2 f) and section 49 (1) no. 6 of the German Income Tax Act (Einkommensteuergesetz; EStG) in terms of the contentious points such that the fact that a right is merely registered in Germany does not automatically lead to it being subject to the German tax regime. The amendment is to be applied to all open cases.

1 Draft Bill for an Act to Modernise Relief from and Issue Certification for Withholding Taxes (Referentenentwurf für ein Gesetz zur Modernisierung der Entlastung von Abzugssteuern und der Bescheinigung von Kapitalertragsteuer) dated 19 November 2020.

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