Germany's Tax Treatment of Cross Border Royalty Payments to Non-Residents

Textbook from the year 2008 in the subject Economics / Business: Accounting and Taxes, grade: keine, keine, 11 entries in the bibliography, language: English, abstract: A practical compendium on the handling of German withholding taxes imposed on royalties and similar remuneration paid by licensees resident in Germany to foreign licensors (Section 50a (3) No. 3 German Income Tax Code).According to German tax law individuals who have neither residency nor their usual abode in Germany and legal entities which are not effectively managed or resident are liable to tax in Germany only with income generated from certain types of business transaction as listed in section 49 Income Tax Code (ITC). In cross border cases it is therefore in a first step always necessary to ascertain whether the planed transaction will fall under one of the income categories listed in section 49 (1) No. 1,2,3,6 and 9 ITC. In most of these cases it is necessary that the rights will be exploited or used in Germany.Germany is not allowed to levy any tax regardless of what is stipulated in any tax conventions and the German licensee may not be held liable in case Germany has no entitlement to levy any tax according to its domestic tax law. The same applies, where the foreign licensor can proof that he is fully liable to tax in Germany. However, in case of doubt it is necessary that the German licensee or the foreign licensor clarifies the taxation rights with the local tax office responsible for the tax affairs of the licensee in Germany; the Central Federal Tax Office is not responsible in such cases. Only in case the local tax office confirms that the foreign licensor is not liable to tax in Germany with the concerned transaction the licensee may be allowed to refrain from deducting any tax otherwise the expectation is always - also in case of doubt - that licensee operates tax deduction. As a rule of thump one should assume that licence fees paid to foreign licensors are subject to limited tax liability in Germany