Business entities are increasingly called on to pay withholding tax. The main reasons for this are digital business processes and company processes, as well as cross-border activities and structures. However, a societal change in thinking also contributes to this. While practices for transferring profits abroad have been at least tolerated until recently, there is now an increasingly critical public discussion about this. In addition, the complexity of the withholding tax matters and their tax assessment through new regulations such as the draft Withholding Tax Relief Modernisation Act (Abzugsteuerentlastungsmodernisierungsgesetz, AbzStEntModG) is increasing again. In addition, current needs for action are increasing pressure on companies: As it is planned to tighten withholding tax reduction requirements, companies should review their international structures, particularly for dividend payments. Business entities are also forced to take action in charging withholding tax for royalty payments between foreign companies for intellectual property (IP) registered under German patent law. This option of the simplified “smoothing out” of the past ends here in December 2021. Anyone who does not have a handle on withholding taxes, either by means of a certificate of exemption or the withholding and remittance to the tax authority, can be held liable.

There is a threat of multiple taxation, which is a serious cost risk at withholding tax rates of 25 percent, for example.

Therefore, the goal of each business entity should be to examine the withholding tax use cases in a structured manner and to establish a process that ensures the payment given the business-related circumstances.

Auf einen Blick: Mögliche Quellensteuer-Sachverhalte

Two-tier investment structure abroad

In the future, for example, the withholding tax relief will not apply if the entitlement to relief for dividends is based on two different entitlement standards. 

Domestic registered rights or patents

Lizenzzahlungen, die sich auf die im Inland registrierten Rechte und Patente beziehen und zwischen ausländischen Gesellschaften gezahlt werden, lösen in Deutschland Quellensteuer aus.