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In today's dynamic and interconnected global economy, multinational companies face the challenge of navigating through a complex web of tax regulations. One particularly relevant regulation concerns the so-called "registry cases� or “Registerfälle" in Germany. This involves the limited tax liability for income from the grant of rights that are registered in a domestic registry, according to Section 49 (1) No. 2f of the German Income Tax Act (EStG).

This regulation was originally introduced in 1925 to ensure that Germany receives a fair share of the revenues from rights registered domestically. Until 2020, in practice, only license payments and IP transfer gains from domestic licensees or domestic sellers were actually taxed, while transactions between foreign parties went unnoticed. This practice was not challenged by the German tax authorities, and legal disputes mainly concerned payments from domestic entities.

In 2020, the German tax authorities, through a letter by the Federal Ministry of Finance (BMF), took a clear stance for the first time, stating that license payments and disposal gains of beneficiaries residing abroad are also subject to limited tax liability, and foreign licensees are required to pay withholding tax. This change in previous practice led to significant protest from affected companies and confusion among foreign governments and tax authorities. Taxation solely based on a domestic registry entry was viewed as excessive and potentially in violation of international law.

This regulation has evolved into a complex issue for companies, bringing both legal and economic implications for internationally operating businesses. In a globalized economy, where intellectual property is often used and licensed across borders, the question arises as to the extent to which Germany can tax licensing and disposal transactions whose only connection to the country is the registration of the right. Currently, many cases are being discussed with the tax authorities, primarily concerning the determination of the tax base (see subsequent explanations). The question of whether the new interpretation of Section 49 (1) No. 2f EStG by the German tax authorities is lawful is very likely to be the subject of future legal proceedings.

Determination of the Tax Base: Challenges and Approaches
The BMF in its letter dated February 11, 2021, prescribed the "top-down approach" for determining the appropriate remuneration under Section 49 (1) No. 2f EStG. This approach focuses on the total gross remuneration and requires a proper allocation, especially when contracts cover multiple rights, or the rights are registered in different countries. The allocation is based on the ratio of revenues generated in the affected areas. A valuation approach based on registration costs, or a "bottom-up" approach, is considered inappropriate, as it does not sufficiently account for economic reality.

The BMF in its letter dated February 11, 2021, prescribed the "top-down approach" for determining the appropriate remuneration under Section 49 (1) No. 2f EStG. This approach focuses on the total gross remuneration and requires a proper allocation, especially when contracts cover multiple rights, or the rights are registered in different countries. The allocation is based on the ratio of revenues generated in the affected areas. A valuation approach based on registration costs, or a "bottom-up" approach, is considered inappropriate, as it does not sufficiently account for economic reality.

Key Aspects with Regard to the Tax Base:

1. Share of license fees for trademarks and patents registered in Germany: Licenses are often paid for comprehensive packages of intellectual property. A detailed assessment of individual IP components is challenging, making the determination of the share for, for example, "naked" trademarks controversial. Companies must carefully examine how they determine license fees for specific shares of intangible assets to minimize tax risks.
2. Principle of territoriality: The principle of territoriality states that the protection of intellectual property is enforceable only in the country where it is registered. Intellectual property registered in Germany is relevant only if it is used within German territory. If there is limited use, for example, because no production takes place in Germany, the portion of license payments subject to German withholding tax should reflect this limited use related to Germany.
3. EU trademarks and publicly recognized trademarks: Income from the licensing or disposal of rights registered in a German registry is subject to limited tax liability in Germany according to Section 49 (1) No. 2f EStG. Trademarks registered both with the German Patent and Trademark Office and as EU trademarks often do not provide additional protection and should be considered as reducing factors when determining the portion of license payments attributable to Germany.

Determining the tax base for license payments and disposals in an international context is complex, especially for trademarks and patents registered in Germany. It is important to carefully consider these aspects to minimize tax risks.

For questions, your direct contacts at ÀÖÓ㣨Leyu£©ÌåÓý¹ÙÍø AG Wirtschaftsprüfungsgesellschaft are happy to assist you.

Publication Date:

30 May 2025