Online advertising fees not subject to German withholding tax

German tax authorities officially reject recent tax audit trend. Significant impact on the tax position of nonresident companies offering online advertising services in Germany could be avoided.

Online advertising is booming thanks to global digitization. In a number of recent German tax audits, tax inspectors have treated payments as withholding tax-inducing royalties if made by German companies to nonresidents offering online advertising services. According to these auditors, cross-border payments are made for the use of undisclosed know-how. Consequently, the auditors applied the withholding tax regime on these deemed royalties at a rate of up to 18.8%

New administrative guidance on pseudo-digital advertising tax

The matter was escalated within the German tax authorities. It took several months for the Federal Ministry of Finance to issue its fundamental administrative guidelines on April 3, 2019. Now, it confirms online advertising fees paid to non-resident service providers are not subject to German withholding taxes. Noteworthy, the ministry’s guidelines refer to fees for advertising for:

online search engines,
online market platforms,
social media advertising,
banner advertising, and
similar other online advertising.

The rejection of any German pseudo-digital advertising tax applies regardless of how the fees for online advertising are calculated. Thus, it is irrelevant whether fees are paid click or per order or in the form of a revenue share.

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