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In a judgement which was apparently not appealed and has become final, the Hamburg tax court has held that the licensing of individualised software for use by a customer is subject to the full VAT rate (previously: 15 %; from April 1998 onwards: 16 %). The reduced VAT rate of 7 % is not applicable because, in the court's view, the supply does not constitute a grant of rights under the copyright act within the meaning of sec. 12 (2) no. 7 (c) UStG (decision of 22 May 1997 - EFG 1997, 1557).

The court admits that software licensing agreements typically involve grants of rights protected by the copyright act to some extent. For instance, the mere loading of software into a computer's random access memory is a form of reproduction and is prohibited without the consent of the copyright owner. However, the main focus of software license agreements is on delivery of a computer program which can accomplish the functional objectives contractually agreed upon between the parties. The customer is not interested in acquiring protected rights with respect to the software so that he can copy or modify it for purposes of resale. The licensor's obligation under the agreement is to enable the customer to use the software for the contractually agreed purpose. It is a matter of indifference to the customer how the licensor accomplishes this (decision at page 1559). Under such circumstances, the court held that the copyright transfer was subordinated to the principal supply, i.e. delivering software which can perform certain functions.

The decision involved a license of individualised library management software in the context of an agreement under which the licensor undertook to provide a package of services including installation, training, and software maintenance in addition to adapting its software to suit the customer's needs.

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