The Annual Tax Act 2022 contains significant changes, reclassifications and restrictions regarding the taxation of income from rights (IP) entered in a German register ("Register Cases"). It was promulgated on December 20, 2022, and the articles relevant to Register Cases entered into force on December 21, 2022.
In the following, we provide a summary of its content, which is significant for internationally operating corporate groups, as well as any further steps that may be required.
BACKGROUND OF THE REGISTER CASES
The central prerequisite for the establishment of a limited tax liability in Germany is, in principle, the existence of a domestic tax connecting factor. The provisions of Sec. 49 (1) No. 2 (f) and No. 6 of the German Income Tax Act (ITA) cover, among other things, income from the licensing as well as the sale of rights which are entered in a domestic public register. The Federal Ministry of Finance (BMF) clarifies that patents entered in the domestic register based on an application to the European Patent and Trademark Office also fall within the scope of the regulation. It does not require any further domestic reference. This means that the licensing or sale of an intangible asset may be taxa-ble in Germany even if neither the licensor nor the licensee or neither the seller nor the buyer is resident in Germa-ny.
In a letter dated November 6, 2020, the BMF commented on the previous general taxation of register cases. Proce-dural simplifications were defined in the BMF letters dated February 11, 2021, July 14, 2021, and June 29, 2022. Please refer to our client information dated January 26, 2022, for details of the individual provisions.
NEW REGULATION THROUGH THE ANNUAL TAX LAW 2022
With the Annual Tax Act 2022, the taxation of registered cases was newly regulated, according to which a distinction must be made between 3 types of cases in particular:
- Remunerations from the licensing or sale of so-called other rights to third parties
- Remunerations from the licensing or sale of so-called other rights to related parties
- Remunerations from the licensing or sale of so-called other rights to remuneration creditors who are tax resident in a so-called non-cooperative tax jurisdiction within the meaning of § 2 German Tax Haven Defense Act.
NEED FOR ACTION
Against the backdrop of the new provisions of the Annual Tax Law 2022, companies should examine possible tax im-plications. The first step is to take stock of the rights registered by the company in Germany or the EU, analyze their utilization and possible value distribution. In the second step, transactions between related parties in particular should be analyzed to determine whether DTA protection exists and whether there is sufficient substance to satisfy the national anti-treaty shopping rules at the level of the remuneration creditor.
Regarding the applicability of the Tax Haven Defense Act, discussions are already underway to extend the list of countries. Further developments remain to be seen.
EFFECTIVE SUPPORT FROM BDO
Please contact your BDO representative to identify the need for action. We will be happy to work out an appropriate individual recommendation for you. If required, we work together with colleagues from the respective BDO member firms from our international network in more than 164 countries.
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