Germany extends IP royalty relief deadlines

Tax Hot Topics newsletter The German Ministry of Finance (MoF) recently released additional guidance addressing the German taxation of income from intellectual property (IP) registered in a German register.

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 last year 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. See our prior coverage here.

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.

In light of this updated guidance, a nonresident licensee can now abstain 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. In addition, an application for an exemption from withholding tax is needed to be filed by the licensor by June 30, 2022.

David Sites
Washington National Tax Office
T +1 202 861 4104

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