German tax filing and withholding tax obligations can be triggered by intellectual property (IP) structures without an obvious nexus with Germany.
New position on tax liability
Under Art. 49 (1) No. 2 (f) and No. 6 of the German income tax law (Einkommensteuergesetz), a limited tax liability exists even for foreign entities on income generated through:
These underlying rules have existed for many years. However, Germany’s Finance Ministry issued guidance—letter (November 2020) (German)—advising that the registration of a transferred right in a domestic register is sufficient to trigger tax obligations (without any other German nexus).
At the same time, German tax audits are increasingly focusing on licensing relationships in group companies, leading to subsequent withholding tax claims. In addition to current transfers of rights, “old cases” within the scope of the fiscal limitation periods may be affected by this increased scrutiny. The tax authorities have also started to data-mine the online register of the German patent and trademark office.
In light of the new position of and increased scrutiny from the German tax authorities, non-German companies need to evaluate their licensing relationships.
Read a November 2020 report prepared by the KPMG member firm in Switzerland
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