How are license fees paid
the fees to be paid under the license agreement for the exploitation of licenses and patents in particular.
1. Regularly recurringPayments, mostly rising or falling with employment, are usually recorded as special direct costs for production or, if billed according to sales, as special direct costs for sales.
2. Unique Payments are activated and the resulting depreciation amounts (depreciation), which depend on the license period, are transferred to the cost accounting.
Sales tax law
With the transfer of a patent, trademark, etc. for exploitation by the licensee, the licensor provides another service within the meaning of the sales tax law. It is taxable if it is made in Germany; the place of the other service is usually where the recipient operates his company.
Additional paid services associated with the license, such as the appropriate provision of advice and suggestions for improvement, are treated like the main service. As a rule, the licensee is also entitled to the input tax deduction in the amount of the sales tax included in the license fee paid.
Income tax law
1. Treatment at the payer: License fees represent deductible business expenses for those who pay them (Section 4 IV EStG). A quarter of the trade tax is added back to the trade income, i.e. charged to a certain extent with trade tax (Section 8 No. 1 Letter f of the Trade Tax Act from 2008).
2. Treatment by the recipient: For the recipient, license fees can be taxable income from self-employed work, Section 18 I EStG, provided that it is an individual inventor who exploits his invention himself. As a rule, however, it is the operating income of a commercial enterprise (if the license fees accrue to a sole proprietorship or a corporation) or that it is income from renting and leasing rights (§ 21 EStG; if the licensed right, e.g. patent inherited represents private wealth).
3. particularities: If the payer and recipient are linked by special relationships, it must be checked whether the conditions for the license fees are appropriate. If this is not the case, however, only the unreasonable part of the license fee paid will be regarded as a hidden profit distribution or a hidden contribution, and the appropriate part of the payment will remain recognized for tax purposes.
Tax peculiarities in cross-border case constellations
1. The value added tax for the license payment to a licensor who is not resident in Germany, the customer must pay (tax liability of the service recipient, § 13b UStG). The amount paid to the licensor is therefore only a net amount; the licensor may also only issue a net invoice for sales tax and under no circumstances acknowledge receipt of sales tax. This regulation is also the same in other EU countries (since 2010: classification as an intra-community service).
2. Double taxation treaty: Both Income taxes the double taxation agreement stipulates that license fees are usually only taxed in the country of the licensor (Art. 12 OECD-MA). In some rarer cases, the state from which the royalties originate is given the right to levy a small withholding tax (often 5 percent of the royalty payment). A regulation of EU law, according to which taxation in the country of origin is prohibited for cross-border license payments from one EU member state to another, only applies to payments between directly related parent, subsidiary and sister corporations, but no longer applies to payments from Subsidiary companies.
3. National German law: German tax law provides for the retention of a withholding tax of 15 percent plus a 5.5 percent solidarity surcharge (in total 15.825 percent), § 50a I EStG, on the payment of license fees to a recipient who is only subject to limited tax liability . With the withholding of this withholding tax, the tax obligations of the foreign payee towards the German state are settled (Section 50 II EStG, Section 32 KStG). However, the tax must also be deducted by the payer if, according to a double taxation agreement, the recipient would have the right not to be subject to taxation in Germany (Section 50d EStG). The tax exemption actually required under the agreement is only established in such cases by the fact that the Federal Central Tax Office, at the request of the recipient, reimburses the amount that may not be withheld under the double taxation agreement (or other special regulations) from the withheld tax deduction amount. If the payer does not comply with this procedure and if he voluntarily waives the withholding of the prescribed tax, he is liable for the tax not paid; if he acted deliberately, a penalty for tax evasion is also conceivable (since the penalty for not registering a tax generally does not depend on whether this tax could be reimbursed later).
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