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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.
Disclaimer and Copyright
This article treats the subjects covered in condensed form. It is intended to provide a general guide to the subject matter and should not be relied on as a basis for business decisions. Specialist advice must be sought with respect to your individual circumstances. We in particular insist that the tax law and other sources on which the article is based be consulted in the original, whether or not such sources are named in the article. Please note as well that later versions of this article or other articles on related topics may have since appeared on this database or elsewhere and should also be searched for and consulted. While our articles are carefully reviewed, we can accept no responsibility in the event of any inaccuracy or omission. Please note the date of each article and that subsequent related developments are not necessarily reported on in later articles. Any claims nevertheless raised on the basis of this article are subject to German substantive law and, to the extent permissible thereunder, to the exclusive jurisdiction of the courts in Frankfurt am Main, Germany. This article is the intellectual property of KPMG Deutsche Treuhand-Gesellschaft AG (KPMG Germany). Distribution to third persons is prohibited without our express written consent in advance.
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A trustee in bankruptcy's rights to obtain a possession order and order for sale against a bankrupt's property will not be suspended indefinitely even where there are exceptional circumstances.
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