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December 10, 2020

WHT do you mean? A 95 year old German withholding tax on royalties

Doug McHoney (PwC's US International Tax Services (ITS) Leader) and Dr. Arne Schnitger (Head of PwC Germany's National Tax Office) discuss withholding taxation in Germany pursuant to Section 49 of Germany's tax code. Doug and Arne discuss: the background of Germany's Section 49 withholding tax and the circumstances under which Section 49 applies; the recent Circular issued by the German authorities discussing the application of Section 49; potential legal challenges to Section 49 taxation, including constitutionality and estoppel; the definition of 'German-registered IP' and 'EU-registered IP', and how tax advisers determine which royalties are subject to tax under Section 49; the interplay between withholding taxation and treaty jurisdictions; the importance of exemption certificates for prospective payments; what companies should do regarding historic liabilities; potential penalties for failure to file and/or remit tax as required by Section 49; and final pieces of advice for multinational taxpayers impacted by Section 49. [NOTE: The majority of this episode was recorded prior to the German Ministry of Finance's release of draft, proposed legislation (in German) regarding the effective repeal of Section 49(1) on an extraterritorial basis as it applies to IP registered in Germany. During the final five minutes of this podcast, Doug and Arne discuss key takeaways from this draft legislation.]

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Doug McHoney

International Tax Services Co-Leader, PwC US

Geoff Jacobi

ITS, Knowledge Management Managing Director, PwC US

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