Ministry of Finance report suggests potential relief on German withholding tax on extraterritorial royalty payments  | Eversheds Sutherland (US) LLP

A new report (the Report)1 published by the German Federal Ministry of Finance (the MOF) suggests that there may be some forthcoming relief for taxpayers impacted by a nearly century-old tax provision which requires extraterritorial withholding tax on certain royalty payments between non-resident taxpayers. The MOF previously published a circular (the Circular), confirming its position that German withholding tax (at a rate of 15.825%) is due and payable on royalties that are payable or that have been paid to a non-German tax resident recipient, even if:

  1. The licensee is not tax resident in Germany, and
  2. The only nexus to Germany is that the intellectual property (IP) rights underlying the royalties are entered in a German public register.

The licensee is required to withhold, declare, and remit German tax unless a treaty-based (or European Union Directive based) exemption certificate has been issued to the licensor by the German tax authorities.  With respect to payments made in 2013 and later, without a certificate, but where a treaty clearly applies, the German tax authorities introduced a “simplified procedure” whereby licensors could apply to the Federal Central Tax Office for a certificate of exemption which would apply to past payments. Other simplifications were later introduced to allow taxpayer to apply for general exemption certificates covering a group of separate license arrangements at a time. The US-Germany treaty and most other German treaties…

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