Draft bill published on 19 November 2020 offers hope that an unnecessary tax discussion may be brought to an end

A German tax issue has been causing great uncertainty among international corporates since spring 2020: Are licence fees received under licence agreements concluded between foreign companies taxable in Germany if the right granted is listed in a public register in Germany, but no other links to Germany exist? In times dictated by the pandemic, German tax authorities appeared to have identified a (new) source of tax income, and despite strong criticism from across the legal press, they were unwilling to surrender it. In a Circular issued by the Federal Ministry of Finance (Bundesfinanzministerium; BMF) on 6 November 2020, the tax authorities still upheld their belief that the income was taxable in Germany. Shortly afterwards, however, the BMF made a surprising U-turn. In a draft bill (Referentenentwurf) published on 19 November 20201, the BMF now proposes amending the relevant tax provisions set out in section 49 (1) no. 2 f) and section 49 (1) no. 6 of the German Income Tax Act (Einkommensteuergesetz; EStG) in terms of the contentious points such that the fact that a right is merely registered in Germany does not automatically lead to it being subject to the German tax regime. The amendment is to be applied to all open cases.