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Germany scraps withholding tax deduction for online advertising

German member audalis explains the German tax authorities' decision to scrap a proposed 15% withholding tax for foreign providers of online advertising.

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A few months ago, German tax authorities occasionally began to audit payments to foreign companies that had been paid for online advertising services. The reason was the opinion of the tax authorities that online advertising is not a service and that, therefore, it is subject to a withholding tax of 15% according to § 50a EStG.

According to this, it was considered that German companies that have made use of online advertising services by foreign companies would have to pay 15 % withholding tax retroactively for 7 years. However, not only the German companies/customers would have to deal with this problem, but also the foreign providers. This is because German companies should be reimbursed by the foreign provider of online advertising services for the back payments of the withholding tax for the past 7 years. Accordingly, there was a threat for the foreign providers that an increasing number of (former) German customers would approach you and demand the payment of 15 % withholding tax for the past 7 years.

For future online advertising services provided by foreign companies, it was proposed that German customers withhold 15% of the amount they have to pay to the provider (i.e. the foreign company) and pay it to the tax office. Therefore, there was a risk for the foreign providers of online advertising services that they would no longer receive 100 % of the invoiced amount, but only 85 % (100 % less the 15 % withholding tax).

This approach would have not only led to major liquidity problems for both German customers and foreign providers of online advertising services but also to a major drop in turnover for the foreign providers.

Therefore, we are very happy to inform you that the proposals are off the table and will not be implemented. With regard to this, there will also be no initiation of such a regulation on the part of Germany in the future either. Accordingly, neither (former) customers will approach foreign providers and demand the payment of withholding tax for the past 7 years, nor will German customers withhold 15% of the invoiced amount in order to pay it to the German tax authorities.

Nevertheless, should customers approach you and unjustifiably demand money from you or withhold 15% withholding tax, Alliott Group German member audalis would be more than happy to advise you.