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Limited tax liability on the licensing or sale of rights registered in german registers

26 January 2022

Goran Peranovic, Certified Tax Advisor, Partner, International Tax Services & Transfer Pricing |
Dr. Henrik Meyer, Certified Tax Advisor, Lawyer, Partner, Head of International Tax Services |
Daniela Lechler, Certified Tax Advisor, Partner, International Tax Services & Transfer Pricing |

In the letters dated November 6th, 2020, February 11th, 2021 and July 14th, 2021, the Federal Ministry of Finance (BMF) commented on tax declarations/tax returns for German domestic income pursuant to section 49 (1) no. 2 lit. f and no. 6 German Income Tax Act (ITA). In the following, we outline its contents, which are important for internationally operating groups of companies, and explain any further steps that may be necessary.


The central prerequisite for establishing a limited tax liability in Germany is the existence of a domestic tax connection. The provision of section 49 (1) no. 2 lit. f and no. 6 ITA includes, among other things, income from the licensing as well as the sale of assets in kind or rights which are registered in a domestic public register. The BMF clarifies that patents which are entered in the domestic register on the basis of an application to the European Patent and Trademark Office also fall within the scope of the regulation.

The intention of the German legislator is thus the general recognition of all income flows which are connected with a right registered in Germany. A further domestic nexus is not required. This means that the licensing or sale of an intangible asset may be taxable in Germany even if neither licensor nor licensee or neither seller nor buyer is resident in Germany.

It is noteworthy that the underlying legal regulation has already existed for some time, but in practice, especially in recent months, the tax authorities have increasingly taken up the issue. The version of the present letter by the BMF underlines the explosiveness of the regulation and should give all enterprises cause to examine the relevance for their own business.


In the letter the BMF differentiates between the two following cases:

In the case of a temporary transfer of rights, the payment debtor must withhold tax in accordance with section 50a (1) no. 3 ITA. The debtor must pay the corresponding tax to the Federal Central Tax Office (BZSt) as well as file a tax declaration to the BZSt.

However, in the case of a permanent transfer of rights, a sale of rights is assumed. Therefore, according to section 25 (3) ITA a tax return must be filed to the responsible tax office.


In principle, the application of an existing double-taxation treaty (DTT) must be examined for each cross-border case. If a protection from double taxation exists due to the DTT the withholding tax outflow may be prevented in the case of licensing, if the licensor has sufficient substance and an exemption certificate is applied for at the BZSt. If the withholding tax has already been paid, the possibility of a refund must be examined on an individual basis. In the event of a sale article 13 DTT may lead to a restriction of the German taxation right if the seller is a resident of the DTT state. Remaining tax compliance obligations must nevertheless be observed.


Special attention should also be paid to possible cases of sublicensing, which will be illustrated in the following example. A company based in Jersey develops IP, which afterwards will be registered into a German register. The use of the IP is granted to an active company based in Ireland upon payment of a licensing fee. The Irish company then again sublicenses the rights of use to a domestic (German) company.

The payment flow between Germany and Ireland falls within the scope of section 49 (1) No. 2 lit. f ITA. There is a double taxation agreement between Germany and Ireland, so that if the relevant conditions are met, an exemption certificate or refund of withholding tax can be applied for in Germany. According to the wording of the law, however, the flow of payments between Ireland and Jersey generally also results in a limited tax liability of the Jersey company in Germany, solely due to the registration of the rights for IP in Germany. A DTT protection cannot be claimed in this respect. Even if the holder of the rights is a resident of a DTT state, e.g., USA, either the exemption or the refund procedure must be followed in order to apply the protection under the agreement.


As mentioned above, not only the licensing of rights entered into domestic registers, but also their sale is subject to limited tax liability. According to the wording of the law, this may also concern cases of disposal of IP that have not been licensed but which are nonetheless considered to have value. The BMF does not comment on this matter in its letter. If in the example mentioned above the company in Jersey now sells the IP to the USA, the sale of Jersey to the USA is taxable in Germany. 


The letters dated February 11th and July 14th of 2021 refer to the abovementioned letter dated November 6th of 2020, take a stand regarding the matter at hand once again and grant the following relief concerning section 49 (1) No. 2 lit. f ITA:

In the case of temporary transfer of rights registered in Germany and with no further nexus in Germany, no tax must be withheld for remuneration received until June 30th of 2022 if the licensee did not have its legal domicile or effective place of management (for individuals residence/habitual stay) in Germany at the time of the license payment (no unlimited tax liability); the licensor is resident of a state, for whose treaty (“DTT”) it is eligible; the license payment resp. the income from licensing is to be attributed to the licensor according to the DTT; the licensor applies for a WHT exemption certificate with the Federal Central Tax Office until June 30th of 2022 (according to section 50d para. 2 sent. 1 ITA); and at the time of the application for exemption, all contractual relations/circumstances are disclosed (in German language for the most relevant parts).

For license payments made after June 30th of 2022, the general rules of section 50d para. 1-4 ITA apply. The Federal Central Tax Office can reject the application if it doubts the entitlement to relief from WHT according to the DTT or section 50d ITA. In this case, the tax must be withheld, paid and registered within one month after the rejection.


With regards to the clarifications of the BMF, companies should examine possible tax implications. In the first step this includes an inventory of rights registered by the company in Germany or the EU, an analysis of their exploitation and possible value allocation. This should be done in a timely manner in order to claim the abovementioned deadline-based reliefs, where necessary. In the case of sublicensing, it must be clarified which party is the actual owner of the rights and what possible tax obligations may arise from this.


Please feel free to contact your BDO contact person in order to identify the need for action. We will be happy to work out an individual recommendation for you. If necessary, we will work with our colleagues from our respective BDO Member Firms from our international network in more than 160 countries.