Germany: Take care of tax risks with trademark or patent rights!
Limited tax liability for rights registered in Germany
Income from the licensing and profits from the sale of certain rights are subject to limited tax liability in Germany to the extent that they are attributable to rights which are exploited in a domestic permanent establishment or registered in a German public book or register. In a letter dated 6 November 2020, the German BMF explicitly mentioned that the limited tax liability is not linked to whether the licence payer is resident in Germany or not. This is problematic because in Germany – unlike in Austria where the domestic limited tax liability is more or less the same – a withholding tax must be withheld even if a double taxation agreement takes this taxation right away from Germany. The exception is only if the licensor applies for an exemption certificate in Germany before payment and presents it to the licensee upfront.
Example
Caution: This limited tax liability also applies if the licence payer is not resident in Germany!
An Austrian company pays trademark licences to a French licensor. The trademark right is also registered in Germany. The licence fee is subject to limited tax liability in Germany. The DTA subsequently allocates the right of taxation only to France. However, the French company would have to submit an exemption certificate in Germany. If this is not available, the Austrian company, as the debtor of the remuneration, would in principle have to withhold and pay withholding tax in Germany. The French company could then apply for a refund.
Retroactive application from 2014
This procedural approach is to affect all royalty payments from 2014 onwards, which could make it necessary to file and pay German withholding tax retroactively.
Vereinfachungen für DBA Fälle für Vergangenheit
Exactly for such old cases from 2014 (so-called register cases), in which no exploitation took place in Germany, relief is now provided under the following conditions:
- The licensee was not subject to unlimited tax liability in Germany at the time of payment.
- The licensor is clearly DTA-entitled (no DTA-entitlement exists, for example, in the case of hybrid or dual resident companies).
- The licensor submits an application for exemption from withholding tax to the Federal Central Tax Office by 31 December 2021 and discloses the contractual relationships in this application.
Caution: No simplifications for royalties received after 30 September 2021!
For royalties accruing after 30 September 2021, the “normal procedure” applies in any case, so that the licensor must obtain exemption certificates in advance in any case for relief at source.
Caution: Sale of rights
When rights are sold, the German BMF always requires the submission of a tax return, even if the seller is clearly DTA-entitled and the double taxation treaty withdraws Germany’s right of taxation.
In such cases, a tax return must be filed in Germany. A zero return is possible, provided that the return is submitted to the competent tax office by 30 September 2021, together with disclosure of the facts and the contractual basis.
