German Withholding Taxes in “Total Buy-Out” IP Agreements

In a recently published decision, the German Federal Tax Court (Bundesfinanzhof, BFH) clarified for the first time that a remuneration for the complete transfer of rights in the context of a “total buy out” against a one-off flat-rate remuneration by a foreign rights holder can trigger a deduction obligation for taxes on the part of the domestic contracting party.

In the underlying case, a domestic media company concluded a total buy-out agreement with a freelance producer living in Australia, which was subject to German law according to the will of both parties. The producer undertook to forgo all copyright and other rights in return for a lump-sum payment. The German tax office claimed that the royalties paid were subject to German withholding taxes.


The BFH fully confirms the dismissal of the action by the local tax office, on grounds that the foreign contracting party is neither domiciled nor ordinarily resident in Germany and the flat-rate remuneration is subject to German tax law. The court accepted that no withholding taxes need to be deducted in cases of a sale (legal purchase) or economic consumption of legal rights. However, since copyrights within the meaning of § 2 UrhG are inalienable under § 29 I UrhG, a transfer of rights within the meaning of “total buy out” is not possible pursuant to German IP law. Pursuant to Section 32a UrhG, the right holder is entitled to a continuous legal claim to further remuneration, ensuring that the economic value of the rights remains with the right holder.


The decision of the BFH clarifies the question in dispute as to whether a permanent transfer of copyrights in the meaning of a total buy-out is a legal purchase. However, in this case no tax liability exists according to §50 I No. 3 EStG so the obligation to deduct German withholding taxes is triggered. The BFH agrees with the opinion of the tax authorities to this extent and denies the possibility of contractually creating a situation similar to a sale in this case. The legal situation has been unclear so far, meaning that domestic payment debtors can now examine potential deduction obligations and draw consequences. In future agreements, respective wording should be inserted and a protection pursuant to tax treaty or EC directives might be sought by the right holder.

The judgment in German, together with a detailed note, is reproduced in GRUR -Prax 2019, 258.


Authored by Mathias Schoenhaus

Mathias Schoenhaus


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