International tax issues have never been as relevant on the political agenda as they are today. The integration of national economies and markets has increased substantially. The same applies to the relevance and value of intellectual property rights in general. The ease of transferability of IP rights has also led to companies shifting their profits abroad using certain preferred tax regimes granted by individual jurisdictions, such as the patent box. Notwithstanding the upcoming implementation of the OECD base erosion and profit shifting ("BEPS") measures, the German legislature decided to enact a unilateral measure which goes beyond the original proposal of the OECD. The reason for this initiative is, inter alia, that the German tax administration feared that the OECD measures might easily be bypassed by non-member states of the OECD. Hence, the German draft bill provides for a tax penalty by restricting the possibility to deduct royalty payments if royalties are substantially low taxed under another preferential tax regime.
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