The German Ministry of Finance (MoF) recently released updated guidance extending the deadline for relief addressing the German taxation of income from intellectual property (IP) registered in a German register. The new deadline for licensors to file an application for an exemption from withholding taxes is June 30, 2023.
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 in 2020 regarding whether this language subjected payments between non-residents to taxation relating to German-registered IP.
In November 2020, the MoF issued initial guidance providing that under existing German law, the registration of IP in Germany alone is sufficient to trigger taxation—including withholding tax—of related royalty income or capital gains. The MoF also released draft legislation that included an amendment to German Income Tax Act if enacted would have prevented such treatment. However, in January 2021 the proposed amendment was reversed in the government draft law, ensuring the original provisions of the German Income Tax Act remain in effect.
Subsequently, in February 2021, the MoF issued guidance providing procedural relief relating to royalty withholding tax filings and payments for certain nonresidents. On July 14, 2021, the MoF issued additional guidance updating this relief, including allowing a nonresident licensee to seek relief from declaring and withholding taxes for relevant payments made up to June 30, 2022, if certain requirements (including qualifying for a German Double Tax Treaty) are met. For more information, see our prior story, “Germany extends IP royalty relief deadlines.”
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