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In a ruling dated 13 August 1997 (DStR 1997, 1684 - 13 August 1997), the Federal Tax Court has clarified an important procedural aspect of appeals against the imposition of withholding tax. The current withholding tax rate on royalties is 25 % (sec. 50a (4) EStG).
The obligor (payor) of royalties withheld tax at the statutory rate and filed a corresponding withholding tax report. The obligee (payee) of the royalties believed that the amount withheld was excessive and filed an administrative appeal against the withholding tax report. A withholding tax report is, procedurally speaking, the equivalent of a tax assessment subject to change on subsequent audit (sec. 168 AO). As such, the taxpayer may at any time request modification or vacation of the assessment. In a withholding situation, the taxpayer is the obligee (payee) of the income in question.
The obligee likewise filed a motion to stay collection of the withholding tax. This is permissible even when the tax has already been remitted and, if successful, leads to refund of the tax.
The Federal Tax Court held, however, that the grant of a stay of execution pursuant to motion filed by the obligee leads to refund of the withholding tax to the obligor (payor), not to the obligee, as long as the obligor (payor) has not assented to refund to the obligee. In the event of an adverse judgement on the merits, the obligor will be forced to pay the tax plus interest. In the case at hand, the obligor refused to assent.
Since the obligee (payee) was invoking a tax treaty, the proper course to take was to file a refund request under sec. 50d EStG.
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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