On 2 June 2017, the German Federal Council approved a new law introducing a so-called royalty barrier (Lizenzschranke). Accordingly, as of 1 January 2018, German-based licensees will be unable to deduct royalties paid to affiliates to the extent that the licensor’s royalty income is not subject to the regular tax regime (e.g. IP box regime) and taxed at a low rate within the meaning of the royalty barrier (effective tax rate of < 25 %). This prohibition on deduction does not apply, however, if the royalty income benefits from a preferential arrangement under the OECD’s so-called Nexus Approach.

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