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      Companies are increasingly being required to pay withholding tax. The main reasons for this are digital business processes and company procedures as well as cross-border activities and structures. However, a rethink in society is also contributing to this. While practices for shifting profits abroad were at least tolerated until recently, there is now an increasingly critical public debate about them. In addition, the complexity of withholding tax issues and their tax assessment is increasing once again due to new regulations such as the draft of the German Withholding Tax Relief Modernisation Act (AbzStEntModG). In addition, the current need for action is increasing the pressure on companies: As there are plans to tighten the requirements for withholding tax reduction, companies should review their international structures, especially for dividend payments. Companies are also under pressure when it comes to withholding tax on licence payments between foreign companies for intellectual property (IP) registered under German patent law. The option to simplify the "smoothing out" of the past ends in December 2021, and companies that do not have withholding tax under control - either through an exemption certificate or by withholding and paying it to the tax authorities - may be held liable.

      There is a risk of multiple taxation, which is a serious cost risk with withholding tax rates of 25 per cent, for example.

      The aim of every company should therefore be to analyse withholding tax application cases in a structured manner and to set up a process for the facts relevant to the company that ensures payment.

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      At a glance: Possible withholding tax situations

      • Two-tier investment structure abroad

        In future, for example, withholding tax relief will no longer apply if the entitlement to relief for dividends is based on two different entitlement standards.

      • Domestically registered rights or patents

        Licence payments relating to rights and patents registered in Germany and paid between foreign companies trigger withholding tax in Germany.

      • Commissioning an influencer based abroad

        If influencers advertise products on their social media channels, the company may receive utilisation rights to images and videos. The provision of products or services free of charge or at a reduced price already counts as consideration triggering withholding tax.

      • Use of media files from foreign stock media providers

        If the marketing department uses media files from foreign stock media providers (e.g. photos) as part of its own advertising measures (online, print), withholding tax is incurred.

      • Commissioning of foreign artists or athletes

        When commissioning foreign artists, agencies or athletes for internal and/or external advertising purposes, withholding tax often has to be withheld.

      • Exploitation of rights with foreign co-operation partners

        The agreement to jointly utilise or exploit rights with a foreign cooperation partner may trigger withholding tax

      • Supervisory Board member resident abroad

        Supervisory bodies domiciled abroad trigger withholding tax obligations.

      How we support you

      Based on our many years of expertise, we offer you support tailored to your needs. This ranges from individual case counselling and a withholding tax compliance check to a procedural software solution.

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      Individual case counselling

       
      Processing of procedural issues and communication with the tax authorities on withholding tax issues.

      • Disclosure of previously undeclared withholding taxes and capital gains relating to intellectual property (IP) that is recorded in a German register or has been utilised in Germany.
      • Processing of exemption and/or refund procedures (on a treaty or EU legal basis) on behalf of the foreign remuneration creditor.
      • Preparation of tax certificates for the foreign remuneration debtor.
      • Assistance with any necessary changes to the corporate structure in order to avoid withholding tax on dividends in principle.
      • Drawing up tax clauses (gross/net agreements and co-operation agreements) with the foreign contractual partners.
      • Preparation of a § 50a EStG guideline, work instructions or training documents, taking into account the special features of your company.

      Withholding tax compliance check

       
      The aim of the check, which consists of three phases, is to identify, evaluate and, if necessary, (re-)explain withholding tax-relevant issues in your company.

      • Phase 1: Workshops with the relevant specialist departments and central functions such as marketing, purchasing, IT, legal and HR to identify potential use cases and to sensitise employees to withholding tax issues.
      • Phase 2: Analysis and evaluation of the identified contractual relationships as part of standardised evaluation and recording forms, if necessary also evaluating relevant accounting systems.
      • Phase 3: Data preparation and reporting of the identified use cases to the Federal Central Tax Office (BZSt).

      Digitalised withholding tax solution

       

      If you would like to establish withholding tax as part of your tax compliance management system, our Section 50a EStG software solution offers a technology-based end-to-end solution approach for the process-supported management and processing of withholding tax issues. We are also happy to assist you with the implementation.

      Regardless of the extent to which you require support, we are at your side with our withholding tax expertise. Get in touch with us.

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