In February 2019, the tax authorities caused uncertainty with their view that a withholding tax of 15.825% should be retained by domestic clients of foreign providers on fees paid for online advertising (cf. Client Information of Feb 14 2019). This view has now been rejected by the tax authorities at federal and state level.
Key Facts
- According to the initial tax authorities' view, foreign operators of web portals should have become subject to limited tax liability in Germany through the provision of online advertising services to domestic clients. Therefore, domestic advertisers would have to retain a 15.825% withholding tax on the remuneration and remit it to the Federal Central Tax Office.
- Now an agreement has been reached by the tax authorities at federal and state level that domestic clients are not obliged to retain withholding tax on online advertising.
1. Background
In the initial view of the (particularly Bavarian) tax authorities, fees paid by domestic clients to foreign operators of web portals (e.g. search engines and social media) for online advertising services should have been subject to a withholding tax of 15.825% of the remuneration. In case of a contractual "gross up", the additional burden on the domestic client would have amounted to approx. 18.8% of the "net" payments to be made to the foreign provider.
In numerous cases the view of the tax authorities would have caused domestic entrepreneurs to be threatened with considerable additional tax claims even for past assessment periods. The tax literature has strongly rejected the opinion of the tax authorities.
2. Rejection of the tax authorities' view at federal-state level
The Bavarian State Ministry of Finance and Home Affairs has now given the all-clear in a press release.
A clarification was reached by the tax authorities at federal and state level, pursuant to that domestic advertising companies are not obliged to retain withholding tax on online advertising.
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