German IP nexus and withholding tax – timing issues and how to face them

Prepared by Alessandro Di Stefano, Giovanni Consiglio, Giuseppe Falduto ed Elisa Pesce

The German tax law adopted a provision that forces non-resident taxpayers to pay a Withholding tax (WHT) in Germany for the royalty payments connected to the detention of Intellectual Property (IP) like patents and trademarks registered or exploited in Germany. Specifically, WHT is considered as payable (by the payer) even if neither the payer nor the recipient are resident in Germany, due to the nexus with Germany created by the IP with the German territory. In this connection and as anticipated in our previous Newsletter dated September 14, 2021, royalty WHT shall be paid in Germany in the case of (i) mere registration in German public registers of IP rights generating royalty payments between companies not resident in Germany, and (ii) in the case of economic exploitation of IPs through a German permanent establishment, regardless the registration of the relevant IP. In both circumstances, the non-resident payer would be required to pay a withholding tax rate of 15.825%. In addition, this provision would apply also retroactively on royalty payments made from 2015 to date.

However, the above-mentioned WHT on the payer would not apply if the corresponding non-resident income recipient (i) fulfilled the requirements of the double taxation agreement between Germany and the recipient’s Country of residence and (ii) was excluded from the scope of the German anti-avoidance rules (“anti-treaty shopping rules”).

In these circumstances, the recipient would be required, in advance (i.e. prior to the payment of the royalties), to submit an exemption request to the German tax authorities, providing evidence of the above mentioned requirements. After proper verification, the German tax authorities will issue an exemption certificate based on which the recipient shall be formally allowed not to apply the WHT in Germany. In parallel to the rule, the Ministry of Finance has also bestowed the option to file the exemption request following the payment of royalties, thus giving a retroactive nature to the exemption, which would cover all payments made from 2015 onwards if the certificate is obtained by June 30, 2022.

Please note that the deadline to file the application for WHT exemption has been recently extended to 30 June 2022 (previously the deadline was 31 December 2021).

Currently, the timeline for the German tax authorities to issue the tax exemption certificate averages between 6 and 12 months. However, if the request for tax exemption is not adequately supported by a thorough analysis of the double tax treaty and German domestic provisions, the authorities often tend to send requests for additional clarifications, thus lengthening the process.

As a result, the readers shall wonder, what if the exemption certificate is not released by the German tax authorities by the deadline of June 30, 2022?

According to PwC Germany’s interpretation of the current law framework, royalty payments that qualify for the application of the above provision made from 2015 through June 30, 2022 should be protected under the exemption request procedure, meaning that there would not be any obligation to apply German WHT until tax exemption is formally denied by the German tax authorities. Conversely, qualifying royalty payments made after June 30, 2022 should be subject to German WHT if the exemption certificate was requested to the German Tax Authority for but not obtained yet as of June 30, 2022.

Considering the above, Italian companies should evaluate their IP structures and transactions in order to identify potential German-registered IP and evaluate respective requirements, such as:

  • Analyze as soon as possible to which extent group entities might be affected by this topic (e.g. IP nexus analysis).
  • Perform an in-depth analysis of the applicable double tax treaty and domestic German regulation.
  • Apply as soon as possible for exemption certificates for treaty exempt royalties which shall be obtained by 30 June, 2022.
  • File tax returns/ tax disclosures for transactions that may not fall under the exemption procedure. 

Notice that the WHT exemption certificate, if obtained, would protect the non-resident entities from payment of taxes, sanctions as well as related criminal liability stemming from omitted WHT obligations in Germany.

Let’s Talk

For a deeper discussion, please contact:

Alessandro Di Stefano

PwC TLS Avvocati e Commercialisti


Giovanni Consiglio

PwC TLS Avvocati e Commercialisti


Giuseppe Falduto

PwC TLS Avvocati e Commercialisti

Senior Manager


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