Limited tax liability of "register cases" - ATA 2022 (likely) to provide taxpayers with limited relief only
Dr Gottfried Breuninger
Partner, German Head of Tax
Dr Magnus Müller
Dr Heike Weber
Frankfurt am Main
Dr Dirk Schade
Frankfurt am Main
09 December 2022
A look back
The term "register cases" refers to the limited taxation of the temporary granting or disposal of German-registered rights where, beyond the entry in the register, no further links to Germany exist (previously provided for in section 49 (1) no. 2f and no. 6 EStG).
In this regard, the ATA 2022 draft versions published in July 2022 and October 2022 still provided for limited tax liability to be largely abolished in future. Future taxation was to be upheld only in cases where the holder of the right is resident in a non-cooperative jurisdiction. According to the ATA 2022, it is now also intended that cases not subject to a double tax agreement (DTA) between related persons within the meaning of section 1 (2) Foreign Tax Relations Act (Außensteuergesetz; AStG) should continue to be subject to tax.
Amendments to the ATA 2022 version passed by the Bundestag on 2 December 2022
In summary, the provisions of the ATA 2022 governing the taxation of register cases, as adopted by the Bundestag, provide as follows:
- Where the parties to a temporary granting or disposal of rights are related persons within the meaning of section 1 (2) AStG, the limited tax liability is to continue to exist in general terms. An important exemption applies in cases where an applicable DTA precludes the application of German tax law and where German provisions (such as section 50d (3) EStG) do not run counter to any DTA application either (DTA case). In these DTA cases, any remuneration received after 31 December 2022 or disposals after 31 December 2022 shall no longer be subject to any limited tax liability. As regards the period prior to 1 January 2023, DTA cases will continue to be subject to taxation.
- Where the parties to the temporary granting or disposal of rights are not related persons within the meaning of section 1 (2) AStG, any limited tax liability shall cease to apply in all open cases, i.e. including with retroactive effect.
- In cases where the creditor of the remuneration for the temporary granting or disposal of German-registered rights is resident in a non-cooperative jurisdiction coming under the scope of the German Defence against Tax Havens Act (Steueroasen-Abwehrgesetz; StAbwG) (corresponds to EU-list of non-cooperative jurisdictions for tax purposes), a limited tax liability continues to apply in any case. For this purpose, the scope of applicability of the Defence against Tax Havens Act has been expanded accordingly with effect as from 1 January 2022 (section 10 (1) no. 5 StAbwG).
Implications in practice
Ultimately, the amendments to the ATA 2022 will provide relief to undertakings and tax authorities in future in the numerous intra-group DTA cases as the rejection of any tax liability causes the removal, even at the level of the defining elements, of any duty to file tax declarations or submit exemption certificates. In third-party cases, which would have been very difficult to process in practice for undertakings, this even applies with retroactive effect. The fact that non-DTA cases between related persons in turn continue, without restriction, to be subject to limited tax liability is highly questionable from a legal perspective. Disputes are inevitable here and it remains to be seen how the courts will decide in these cases.
What is important is that for the period until 31 December 2022 "things stay the same" in matters between related persons within the meaning of section 1 (2) AStG, i.e. in particular in intra-group cases, and that in this regard the BMF circulars2 issued on register cases continue to apply, too. Here, it would have to be assessed whether in respect of past tax matters (up until (and including) 31 December 2022) tax returns or tax declarations must be submitted or applications to be granted an exemption certificate can be filed by simplified procedure. Following the BMF circular last issued (29 June 2022), the relevant deadline expires at the end of 30 June 2023.
Although the Bundestag has formally not yet granted its consent, it can be expected, based on the progress of the legislative procedure thus far, that the relevant provisions on "register cases" will come into effect by the end of the year in the form as outlined above.
As shown, with the exception of third-party cases there is need for action for undertakings concerned, at least for the past. In future, businesses with German-registered IP should include the new rules adopted by the Bundestag in their strategic considerations. Our Tax team will be happy to support you. Together with you, we will review any licensing structures and contract types that may be affected, analyse and assess potential risks and assist you in implementing the necessary measures.
1 The BMF had already proposed to abolish the taxation of register cases in the draft version of the German Act to Modernise Relief from Withholding Taxes (Abzugssteuermodernisierungsgesetz) dated 19 November 2020. The relevant wording, however, was then not included in the final version of this Act.
2 BMF circulars dated 11 February 2021 (BStBl. I 2021, 301), 14 July 2021 (BStBl. I 2021, 1005) and 29 June 2022 (BStBl. I 2022, 957).