Online advertising fees not subject to German withholding tax


Online advertising is booming thanks to global digitization. In a number of recent German tax audits, tax inspectors have treated payments as withholding tax-inducing royalties if made by German companies to nonresidents offering online advertising services. According to these auditors, cross-border payments are made for the use of undisclosed know-how. Consequently, the auditors applied the withholding tax regime on these deemed royalties at a rate of up to 18.8% (for further details see here).

New administrative guidance on pseudo-digital advertising tax

The matter was escalated within the German tax authorities. It took several months for the Federal Ministry of Finance to issue its fundamental administrative guidelines on April 3, 2019. Now, it confirms online advertising fees paid to non-resident service providers are not subject to German withholding taxes. Noteworthy, the ministry’s guidelines refer to fees for advertising for:

  • online search engines,
  • online market platforms,
  • social media advertising,
  • banner advertising, and
  • similar other online advertising.

The rejection of any German pseudo-digital advertising tax applies regardless of how the fees for online advertising are calculated. Thus, it is irrelevant whether fees are paid click or per order or in the form of a revenue share.

No EU bloc-wide consensus on digital advertising tax

In contrast to Germany, several EU Member States have proposed unilateral digital tax measures. First of all, Italy and Spain proposed such measures. Also, the UK announced in 2018 that it intends to adopt a 2% digital service tax. Moreover, Frances 3% digital service tax is under way. Most recently, Austria announced the introduction of a 5% digital Service tax.


Probably, these unilateral developments should also be seen against the background at EU level. So far, the EU failed to reach agreement on a bloc-wide digital service tax and digital advertising tax. However, the EU will continue work: first, towards consensus at the level of the OECD; second, towards the introduction of an EU-wide digital tax, if global consensus is not reached by 2020.

Implications for MNEs offering online advertising

In Germany, the new administrative guidance give legal certainty to MNEs offering online advertising. In addition, it provides legal certainty for those service recipients in Germany that can be liable for withholding taxes. However, exactly the opposite is happening in several other EU Member States.


Nevertheless, the Federal Ministry of Finance failed to explicitely state whether fees for online advertising are fully deductible for trade taxes at the level of German business taxpayers. The legal background is that a certain portion of expenses incurred by these taxpayers for the use of IP rights is not deductible for trade taxes in Germany. In contrast, royalties for the use of know-how are not covered by the partial limitation of deductibility at all. At least, the authorities confirmed that fees for online advertising cannot be seen as payments for the transfer of the use of rights, or the right to use them. This implies that these royalties are fully tax deductible for trade taxes, also in the view taken by the authorities.