According to the wording of sections 49(1) no. 2(f) and no. 6 of the German Income Tax Act (Einkommensteuergesetz, EStG), companies receiving payments that are not resident in Germany and lease or rent (license) intellectual property rights entered in a public book or register in Germany (e.g. a patent or trademark register) have limited tax liability in Germany. The tax is either levied as a withholding tax (section 50a(1) no. 3 of the EStG if rights are transferred) or by way of an assessment procedure (section 25(3) of the EStG if rights are sold). The BMF takes the view that no further domestic nexus (beyond registration in Germany) is required.
For the first time, the BMF stated in a letter dated November 6, 2020, that it assumes there is an obligation to deduct tax at the source in cases which the IP is entered in a German book or register. This includes, for example, royalty payments to a foreign payment debtor for a right registered in the German tax register, irrespective of whether there is also a domestic claim. In a letter dated February 11, 2021, the BMF granted a waiver rule, the application of which was extended in a letter dated July 14, 2021 to remuneration received before July 1, 2022. Now, shortly before the expiry of this deadline, the BMF is once again announcing a one-year extension (BMF letter dated June 29, 2022).
This means that the withholding tax can be waived for remuneration received before July 1, 2023 if the following conditions are met:
- The payment debtor is not domiciled in Germany.
- When the remuneration is received, the remuneration creditor is relieved of the burden of withholding taxes levied in Germany by means of a double taxation agreement between Germany and its country of residence.
- The creditor of the remuneration shall submit an application for exemption from tax deduction to the BZSt by June 30, 2023, in which case the contractual relationships - if necessary in German translation - shall be disclosed.