jueves, 22 de junio de 2017

Germany: Lower house approves bill that would limit deductibility of royalty payments

On 27 April 2017, the German lower house of parliament passed a bill that would limit the deductibility of certain related party royalty payments. The bill (which would introduce a new section 4j in the Income Tax Code) generally is based on a draft law published by the federal ministry of finance on 19 December 2016.
The draft law targets royalty payments made to a nonresident that result in the “low taxation” of the income at the level of the recipient due to the application of an intellectual property (IP) regime (i.e. IP box, patent box, license box, etc.), where the IP regime is not based on the “nexus approach,” as described in action 5 of the OECD’s BEPS project.
The bill passed by the lower house largely is identical to the December 2016 draft law, but includes the following updates:

  • Clarification that if the direct recipient of the royalty payment is a transparent entity for local tax purposes, the rule would be applied at the level of the shareholders that are finally subject to tax. This clarification has been introduced to ensure that the rule would apply in such cases.
  • Introduction of a reference to chapter 4 of the BEPS action 5 report with respect to the definition of the nexus approach, including the formula in paragraph 30 and all other criteria described in chapter 4, II. (“Substantial activity requirement in the context of IP regimes”). The “grandfathering” rules in paragraphs 62-66, however, are excluded.
  • When determining whether a preferential tax regime exists when there are several creditors and different tax regimes, the lowest tax rate would be the relevant rate.
  • As described in the initial draft, the rule limiting the deduction of royalty payments would apply to payments made after 31 December 2017.

The upper house of parliament is expected to vote on the draft law on 2 June 2017, and is likely to approve the bill.

Source: Deloitte

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