German Federal Ministry of Finance issued a circular on November 6, regarding withholding tax obligations for non-German taxpayers to submit tax declarations or tax returns for royalty income derived from intellectual property (IP) rights registered in a German register. This includes cases in which both the royalty payor and payee are non-German resident companies. Furthermore, a taxable transfer of such IP can give rise to German capital gains tax. In cases where a treaty provides a 0% withholding rate, it appears that taxpayers will be required to remit withholding taxes and subsequently file for a refund request absent certain advance clearance from the German government.
Multinational companies that own or have in the past owned relevant IP (including IP registered, exploited or used in Germany) should ensure that for all transactions they have met all relevant prior and future tax compliance obligations. Furthermore, this circular indicates that the German government will strictly interpret the relevant withholding provision, which will require taxpayers to procedurally comply with German law, including those taxpayers eligible for a treaty exemption from German tax.
