On January 20, the German government adopted the draft bill on the modernization of the relief from withholding taxes and the certification of withholding tax paid. The draft bill includes changes to the withholding tax and relief procedure and an adjustment of the German anti-treaty-shopping rules. The German government’s approval of the bill is the first step in the legislative process, so companies should monitor possible further changes to the draft bill. Relevant transactions and group structures should be evaluated based on the new rules.
As reported in a previous PwC newsflash, initial versions of the draft bill also included a proposal from the German Ministry of Finance which would repeal, on a retroactive basis, the application of German withholding tax on royalties attributable to IP registered in Germany when paid on an extraterritorial basis. However, that proposal was dropped from the draft bill. As such, the circular published by the German Ministry of Finance, discussed in our previous Insight, applying German withholding tax to such royalties when paid on an extra-territorial basis (i.e., non-German payor and payee) continues to be the controlling guidance.
The envisaged amendments to the German anti-treaty-shopping rules may impact the current withholding tax position of foreign beneficiaries. Multinational companies should review and evaluate relevant transactions and group structures based on these new requirements.
As the draft bill does not include the envisaged abolishment of the German extraterritorial IP taxation for German registered rights, the German tax authorities are expected to focus again on the enforcement of those rules. Multinationals should continue to evaluate their IP structure and transactions in order to identify potential German registered IP and evaluate respective German compliance requirements.