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Germany scraps update to royalty tax law

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Tax Hot Topics newsletter 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.

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

Cory Perry
Senior Manager
Washington National Tax Office
T +1 202 521 1509

Yasmin Dirks
Manager
Washington National Tax Office
T +1 202 521 1506

Olivia Arnold
Manager
Atlanta Office
T +1 678 515 2490

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