Any payer can use the procedure if they pay remuneration for grants of rights as set out in Section 50a (1) (3) EStG and have been enrolled in the CNP by the BZSt in response to a specific request.

The CNP is a simplified procedure. The simplification consists of not requiring the foreign payee to file a special exemption request. This eliminates the need for the foreign tax authority to certify the payee’s tax residency and thus the payee’s right to claim tax relief under the double taxation agreement (DTA). The CNP generally requires no involvement by the foreign payee.

The application has to be filed in writing using the appropriate official form.

The application to enroll in the CNP can only be filed by the payer or the payer’s duly authorized representative.

No. Applications can be submitted at any time. However, the enrollment will not take effect before 1 January of the year in which the application was received.

Enrollments are generally granted for an indefinite period but can be revoked at any time. Revocations may be initiated by the enrollee or by the BZSt, especially when the enrollee violates their obligations in the CNP.

The CNP can only be used for remuneration paid for grants of rights as set out in Section 50a (1) (3) EStG. The CNP only applies to individual amounts (per-contract basis) not exceeding EUR 5,500 (gross amount before VAT) and annual amounts not exceeding EUR 40,000 (gross amount before VAT) per payee.

If it is clear that these limits will be breached, none of the breaching remunerations may be included in the CNP.

If the limits are (unexpectedly) exceeded, the payer will have to withhold tax from the remuneration that breached the limit and then report and pay the withheld amounts.

The 5,500 Euro limit relates to the individual or specific contractual relationship. Individual payment does not mean a single payment, but the sum of all payments for the same service or activity. It is always necessary to check to what extent there is a single service. If a service or activity is invoiced in installments, these installments shall be added together. For a payment that exceeds 5,500 Euro according to the contract but is divided into several payments, the control notification procedure (CNP) is therefore not applicable.

The 40,000 Euro limit is related to the calendar year, it concerns the (total) creditor-debtor relationship with, if applicable, several contractual relationships. If the respective limit is exceeded, the entire remuneration with the payment of which the limit is exceeded is subject to tax deduction.

Example for EUR 5,500 limit:

Party A and party B have entered into a contract that grants copyrights to B. B pays 5,000 Euro for this.

Solution: The CNP is applicable because the limit of 5,500 Euro is not exceeded in the contract.

Example for 5,500 Euro limit/ installment:

Party A and party B have concluded a contract on the transfer of copyrights. B pays 15,000 Euro for this. According to the contract, the payment is made as follows:

01.03.2014 5.000 Euro
01.06.2014 5.000 Euro
01.09.2014 5.000 Euro

Solution: Although the limit of 5,500 Euro is not exceeded for each of the three payments, the control notification procedure cannot be recognized for payments arising from this contractual relationship, as it is an installment payment. The transfer of the copyrights under the concluded contract is a single performance that must be assessed as a whole and the consideration comprises 15,000 Euro. The fact that S may make the payment in three installments does not mean that each payment must be considered separately.

Example for EUR 40,000 limit:

Party A and party B have concluded ten contracts on the transfer of ten different copyrights. B pays 5,000 Euro for each.

Solution: Although the obligation of payment in each contract amounts to a sum below the 5,500 Euro limit, the total contractual relationship between A and B includes payments amounting to 50,000 Euro. The limit of 40,000 Euro per calendar year per remuneration creditor is exceeded and the control notification procedure does not apply.

Note: If it becomes clear early on that an upper limit will probably be breached, the payee can request an exemption under Section 50d (2) EStG from the BZSt, which, if granted, allows the payer either to withhold no tax at all or to withhold tax at a reduced rate (but this does not change the payer’s reporting obligation, Section 50d (2) Sentence 8 EStG).

All sums paid to the payee during the calendar year must be entered in the annual control notification. That also goes for payments to payees that were not included in the CNP because the maximum limits were breached or because the payer had a certification of exemption under Section 50d (2) EStG.

No. An individual payment is not a single payment transaction but rather the totality of all payments for the agreed-upon service (per-contract basis). Even if the parties have agreed to partial or installment payments for a service, these payments still have to be added together (even if they are paid in different years).

If it becomes clear that the EUR 5,500 limit will be breached during a quarter, the payee should immediately apply for a certificate of exemption under Section 50d (2) EStG.

The annual control notification must be filed annually with the BZSt by 30 April for the preceding calendar year.

The notification can be filed on data storage media by prior agreement with Department St II 9, particularly if the annual control notification is so large that it would be impractical to file it on paper in the mail.

Note: Withholding tax returns have different deadlines. They have to be filed with the BZSt quarterly by the tenth of the month following the end of a quarter (Section 73e EStDV).

The annual control notification must be filed annually with the BZSt by 30 April for the preceding calendar year.

The notification can be filed on data storage media by prior agreement with Department St II 9, particularly if the annual control notification is so large that it would be impractical to file it on paper in the mail.

Note: Withholding tax returns have different deadlines. They have to be filed with the BZSt quarterly by the tenth of the month following the end of a quarter (Section 73e EStDV).

The payer’s CNP enrollment notice must be retained indefinitely or, at the very least, for as long as the enrollment is in effect. The annual control notifications must be retained for six years according to Section 147 (3) Sentence 1 in conjunction with Section 1 (5) Fiscal Code. The retention period for annual control notifications starts to run at the end of the calendar year in which the annual control notification was created, i.e. submitted to the BZSt, cf. Section 147 (4) Fiscal Code.

The payer can be held liable under a formal notice of liability for taxes (Section 50a (5) Sentence 4 EStG, Section 73g EStDV) for failing to fulfill their statutory duty to withhold taxes. The payee, being jointly and severally liable, can also have an additional assessment levied against them (Section 50a (5) Sentence 5 EStG).

Yes. Enrolling in the CNP does not absolve payers from their duty to file quarterly tax returns (Section 50d (5) Sentence 7 in conjunction with (2) Sentence 8 EStG). Payers still have to report remuneration even if a DTA exempts them from withholding taxes.

The BZSt is responsible for withholding tax under Section 50a EStG. Since it is responsible for conducting the tax withholding procedure under Section 50a EStG, the BZSt decides whether tax has to be withheld from certain remuneration.

The payer has the following duties:

• File quarterly self-assessed tax returns
• File the annual control notification by 30 April of the following year
• Retain the enrollment notice and annual control notification
• Notify the payee that the payer is enrolled in the CNP and that the payee’s revenue will be reported to the tax authority in the payee’s country of residence
• Check whether Germany has entered into a DTA with the payee's country of residence
• Determine which state has a full or partial right to tax remuneration under the DTA
• Pay the (residual) tax wherever Germany has the right to tax (no solidarity surcharge is paid in residual tax cases; see "Tax withholding amount" for details and examples)
• Notify the BZSt of name or address changes and submit an excerpt from the commercial register for company name changes

No. If the DTA gives Germany the right to levy a tax of 10%, for example, only this 10% should be paid. A 5.5% solidarity surcharge must not be included in these cases.

The legal basis for the CNP is Section 50d (5) EStG..

The annual control notification should at least contain the following information and sort the payees by state and then alphabetically within each state:

• Payer’s name and address
• Payer's tax number
• Applicable calendar year
• Name(s) and address(es) (including postal code, street name and number) of the payee(s); no c/o addresses or PO boxes
• For US payees: their social security number, employer identification number or taxpayer identification number
• Gross remuneration amount per individual payment
• Amount of tax withheld (if residual tax rates apply) per individual payment
• Individual amounts and total amount paid

See the appropriate double taxation agreement (DTA) for details. Exemptions and the use of the CNP are not allowed for countries that do not have a DTA with Germany. If you are enrolled in the CNP, you will have to verify Germany’s right to tax under the DTA. This verification must be performed for each remuneration. The DTA indicates whether you have to withhold tax and how much to withhold.

See the overview of residual tax rates for an overview of Germany’s right to tax royalties.

There is a list of all DTAs on the Federal Finance Ministry website.

Germany retains its full right to tax while payers retain their full obligation to withhold tax. In other words, tax must be withheld at the statutory rate of 15% plus the 5.5% solidarity surcharge.

If the provisions of the DTA seem unclear, payers should withhold, report and pay the tax in order to avoid liability risk. The payee can also preemptively request an exemption pursuant to Section 50d (2) EStG. The BZSt will then determine whether the payee comes under the treaty provisions and is eligible to receive a certificate of exemption. If the remuneration has already been paid, and taxes have thus been retained, reported and paid, the payee can request the BZSt to refund the withholding tax under Section 50d (1) EStG..

Payers enrolled in the CNP must tell their payees in advance that (i) they plan to include the payments in the CNP and (ii) Germany will exchange information with the other country that signed the DTA.

Yes. Payments made for work covered by Section 50a (1) (1, 2, 4) EStG cannot be included in the CNP. These payments constitute remuneration for artistic, athletic or entertainment performances, for the exploitation of such performances or for serving as a director. In the unlikely event that Germany is not entitled to tax this income, an exemption will have to be requested pursuant to Section 50d (2) EStG in order for the tax not to be withheld.