No withholding tax on online advertising

In our newsletter, we reported on the view of the Bavarian tax authorities, both in tax audits and in specialist literature, that payments made by domestic taxpayers to foreign operators of online marketing providers (e.g., Google Ads) would be subject to German taxation.

As a basis, the tax authorities invoked a regulation according to which remuneration earned by a foreign company from the transfer of rights or the transfer of use of know-how and similar experience is subject to withholding tax deduction in Germany. Accordingly, the Bavarian tax authorities had intended to hold German advertisers - as remuneration debtors - liable for the withholding tax.

The majority of tax experts have rejected the tax authorities' view of withholding tax on online advertising services. The federal government and the states have now reacted to the criticism in specialist literature. In accordance with a letter from the Federal Ministry of Finance dated April 3, 2019, which is binding for all tax offices and must be applied in all open cases, an agreement was reached at the federal and state levels to the effect that payments from domestic advertisers to foreign online marketing providers are not subject to withholding tax. Payments to foreign platform operators would be made neither for a temporary transfer of rights nor for a transfer of rights or the transfer of use of know-how and similar experience.

According to the letter, the view of the tax authorities applies to advertising for queries in online search engines, via intermediary platforms, for social media and banner advertising as well as comparable online advertising, regardless of the form of remuneration. According to the Federal Ministry of Finance, this means that the feared additional tax burden on domestic taxpayers will not arise.