Breaking Down The German Royalty Barrier - A View From Ireland

Germany has introduced measures to limit the deductibility of royalties paid by German resident taxpayers to related parties in certain circumstances. The new 'royalty barrier' rule, which targets royalties paid intra-group that benefit from a non-BEPS compliant intellectual property (IP) tax regime, will be effective as of January 1 2018. However, given the nature of the Irish tax regime, the royalty barrier should not impact royalties paid to a principal licensor resident in Ireland.

The Royalty Barrier

The royalty barrier is an attempt by Germany to tackle harmful IP tax practices identified in the BEPS Action 5 Final Report. However, it will apply to royalties paid or accrued after December 31 2017, three-and-a-half years earlier than the June 30 2021 deadline prescribed in the Action 5 report.