The German legislator has introduced a Section 4j to its Income Tax Act (§ 4j EStG). The purpose of the new provision is to limit the deductability of royalty payments to non-resident creditors for German individual taxpayers as well as corporations and (tax-transparent) partnerships.
The new provision is a result of anti-abuse discussions on the international level (OECD, EU) triggered through structures used by some multi-nationals. IKEA, Starbucks, Apple, Microsoft and others have become notorious for their deemed “profit-shifting” by means of royalty structures.
Well, the new German “royalty threshold” provision is a toothless tiger. It will hardly have any effect. I will explain in some detail in one of the next posts.