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Juil 25

German Parliament passes Bill to reduce the effects of IP Box regimes

On April 27, 2017, the German Parliament approved a Bill aimed at limiting the tax deductibility of royalty payments arising from intellectual property (IP) licenses between related parties (e.g. intra-group payments) and thereby limit profit-shifting between related companies.

Before the Bill, royalties paid by a company in Germany to a related party abroad in consideration for an IP license were considered as tax deductible in Germany. If the related party located abroad could benefit from a preferential tax regime (IP box), then the profits resulting from the said royalties could then be taxed at a substantially lower rate.

Now that the Bill has passed, tax deduction possibilities as from 2018 for a German company paying royalties to a related party in a foreign country will be reduced if royalties are taxed at less than 25 percent in that foreign country and even refused if royalties are not taxed at all, unless the related party benefitting from the IP box regime is actively conducting research and developing the corresponding IP.

 

Rodolphe BOISSAU pour ATurquoise

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