Germany scraps update to royalty tax law


The German Ministry of Finance has reversed plans to eliminate a provision in its tax law that imposes tax on royalty income and capital gains flowing from rights registered in a public German register even if no further German tax nexus is present.

The German Income Tax Act provides that domestic-source income is earned if generated from the rental, lease or disposition of rights entered in a German register. It is not necessary that the rights be exercised in Germany or have any other tax nexus. Although the law has existed in its current form for many years, questions began to arise about whether this language subjected payments between non-residents relating to German-registered intellectual property (IP) to taxation.

In November, the German Ministry of Finance issued guidance providing that, under the existing law, the registration of IP in Germany alone is sufficient to trigger taxation of related royalty income or capital gains. It also released draft legislation that included an amendment to German Income Tax Act if enacted would have prevented such treatment.

However, the proposed amendment has now been removed from the draft legislation. The original provisions of the German Income Tax Act remain in effect and the November guidance continues to apply. As such, non-German residents with royalty income or capital gains from German-registered IP may have to file withholding returns and remit tax, even if a double-taxation agreement applies.

For more details, see Warth & Klein Grant Thornton’s story, “Update: Royalty taxation of IP registered in Germany.




Cory Perry

Washington DC, Washington DC

  • Manufacturing
  • Technology and telecommunications
  • Private equity
Service Experience
  • Tax
Tax professional standards statement

This content supports Grant Thornton LLP’s marketing of professional services and is not written tax advice directed at the particular facts and circumstances of any person. If you are interested in the topics presented herein, we encourage you to contact us or an independent tax professional to discuss their potential application to your particular situation. Nothing herein shall be construed as imposing a limitation on any person from disclosing the tax treatment or tax structure of any matter addressed herein. To the extent this content may be considered to contain written tax advice, any written advice contained in, forwarded with or attached to this content is not intended by Grant Thornton LLP to be used, and cannot be used, by any person for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code.

The information contained herein is general in nature and is based on authorities that are subject to change. It is not, and should not be construed as, accounting, legal or tax advice provided by Grant Thornton LLP to the reader. This material may not be applicable to, or suitable for, the reader’s specific circumstances or needs and may require consideration of tax and nontax factors not described herein. Contact Grant Thornton LLP or other tax professionals prior to taking any action based upon this information. Changes in tax laws or other factors could affect, on a prospective or retroactive basis, the information contained herein; Grant Thornton LLP assumes no obligation to inform the reader of any such changes. All references to “Section,” “Sec.,” or “§” refer to the Internal Revenue Code of 1986, as amended.


More tax hot topics