Editing Corporate haven (section)

===German "Royalty Barrier" failure===

In June 2017, the German Federal Council approved a new law called an IP "Royalty Barrier" (Lizenzschranke) that restricts the ability of corporates to deduct intergroup cross-border IP charges against German taxation (and also encourage corporates to allocate more employees to Germany to maximise German tax-relief).  The law also enforces a minum "effective" 25% tax rate on IP.<ref>Accordingly, as of 1 January 2018, German-based licensees will be unable to deduct royalties paid to affiliates to the extent that the licensor's royalty income is not subject to the regular tax regime (e.g. IP box regime) and taxed at a low rate within the meaning of the royalty barrier (effective tax rate of < 25 %).{{cite web|date=2 July 2017|title=Federal Council Approves New Law Limiting Royalty Deductions|url=https://www.bakermckenzie.com/en/insight/publications/2017/07/federal-council-approves-royalty-deductions|url-status=dead|archive-url=https://web.archive.org/web/20181214064403/https://www.bakermckenzie.com/en/insight/publications/2017/07/federal-council-approves-royalty-deductions|archive-date=14 December 2018|access-date=30 May 2018|publisher=[[Baker McKenzie]]|df=dmy-all}}</ref>  While there was initial concern amongst global corporate tax advisors (who encode the IP legislation) that a "Royalty Barrier" was the "beginning of the end" for IP-based BEPS tools,<ref>{{cite news|url=https://tax.thomsonreuters.com/blog/18th-annual-nyukpmg-tax-lecture-addresses-international-provisions-of-tcja/|title=18th Annual NYU/KPMG Tax Lecture Addresses International Provisions of TCJA|work=Reuters|date=13 May 2018}}{{Dead link|date=November 2019 |bot=InternetArchiveBot |fix-attempted=yes }}</ref> the final law was instead a boost for modern corporate tax havens, whose OECD-compliant, and more carefully encoded and embedded IP tax regimes, are effectively exempted.  More traditional corporate tax havens, which do not always have the level of sophistication and skill in encoding IP BEPS tools into their tax regimes, will fall further behind.

The German "Royalty Barrier" law exempts IP charged from locations which have:
{{ordered list|type=lower-roman
| OECD-nexus compliant "knowledge box" BEPS tools.  Ireland was the first corporate tax haven to introduce this in 2015,<ref>{{cite web|url=https://www.independent.ie/business/budget/budget-2016-do-you-know-what-the-knowledge-box-is-31576795.html|title=Do you know what the Knowledge Box is?|work=Irish Independent|date=9 October 2015|access-date=30 May 2018|archive-url=https://web.archive.org/web/20180615005005/https://www.independent.ie/business/budget/budget-2016-do-you-know-what-the-knowledge-box-is-31576795.html|archive-date=15 June 2018|url-status=live|df=dmy-all}}</ref> and the others are following Ireland's lead.<ref>A patent box of this kind is likely to be introduced in Switzerland in the context of tax package 17{{cite web|url=https://news.pwc.ch/34853/royalty-restrictions-germany/|title="Royalty Restrictions" in Germany|publisher=PwC Stiwzerland|date=11 July 2017|access-date=30 May 2018|archive-url=https://web.archive.org/web/20180218125951/https://news.pwc.ch/34853/royalty-restrictions-germany/|archive-date=18 February 2018|url-status=dead|df=dmy-all}}</ref>
| Tax regimes where there is no "preferential treatment" of IP.  Modern corporate tax havens apply the full "headline" rate to all IP, but then achieve lower "effective" rates via BEPS tools.
}}

One of Ireland's main tax law firms, [[Matheson (law firm)|Matheson]], whose clients include some of the largest U.S. multinationals in Ireland,<ref>At least 125 major U.S. companies have registered several hundred subsidiaries or investment funds at 70 Sir John Rogerson's Quay, a seven-story building in Dublin's docklands, according to a review of government and corporate records by The Wall Street Journal.  The common thread is the building's primary resident: Matheson, an Irish law firm that specializes in ways companies can use Irish tax law.{{cite news|url=https://www.wsj.com/articles/dublin-moves-to-block-controversial-tax-gambit-1381890312|title=Dublin Moves to Block Controversial Tax Gambit|newspaper=Wall Street Journal|date=15 October 2013|access-date=30 May 2018|archive-url=https://web.archive.org/web/20180616203914/https://www.wsj.com/articles/dublin-moves-to-block-controversial-tax-gambit-1381890312|archive-date=16 June 2018|url-status=live|df=dmy-all}}</ref> issued a note to its clients confirming that the new German "Royalty Barrier" will have little effect on their Irish IP-based BEPS structures - despite them being the primary target of the law.<ref>{{cite web|url=https://mnetax.com/germany-multinationals-faced-increasing-tax-compliance-obligations-2017-uncertainty-lies-ahead-25330|title=Germany: multinationals faced increasing tax compliance obligations in 2017, uncertainty lies ahead|publisher=MNE Tax|date=27 December 2017|access-date=30 May 2018|archive-url=https://web.archive.org/web/20181214083242/https://mnetax.com/germany-multinationals-faced-increasing-tax-compliance-obligations-2017-uncertainty-lies-ahead-25330|archive-date=14 December 2018|url-status=live|df=dmy-all}}</ref>  In fact, Matheson notes that that new law will further highlight Ireland's "robust solution".<ref name="math">{{cite web|url=http://www.mondaq.com/germany/x/644192/tax+authorities/Breaking+Down+The+German+Royalty+Barrier+A+View+From+Ireland|title=Germany: Breaking Down The German Royalty Barrier - A View From Ireland|publisher=Matheson|date=8 November 2017|access-date=30 May 2018|archive-url=https://web.archive.org/web/20180503182248/http://www.mondaq.com/germany/x/644192/tax+authorities/Breaking+Down+The+German+Royalty+Barrier+A+View+From+Ireland|archive-date=3 May 2018|url-status=live|df=dmy-all}}</ref>

{{quote|However, given the nature of the Irish tax regime, the [German] royalty barrier should not impact royalties paid to a principal licensor resident in Ireland.<br/>Ireland's BEPS-compliant tax regime offers taxpayers a competitive and robust solution in the context of such unilateral initiatives.|source=[[Matheson (law firm)|Matheson]], "Germany: Breaking Down The German Royalty Barrier - A View From Ireland", 8 November 2017<ref name="math"/>}}

The failure of the German "Royalty Barrier" approach is a familiar route for systems that attempt to curb corporate tax havens via an OECD-compliance type approach (see {{slink||Failure of OECD BEPS Project}}), which is what modern corporate tax havens are distinctive in maintaining.  It contrasts with the U.S. [[Tax Cuts and Jobs Act of 2017]] (see {{slink||Failure of OECD BEPS Project}}), which ignores whether a jurisdiction is OECD compliant (or not), and instead focuses solely on "effective taxes paid", as its metric.  Had the German "Royalty Barrier" taken the U.S. approach, it would have been more onerous for havens.  Reasons for why the barrier was designed to fail is discussed in [[Ireland as a tax haven#Political compromises|complex agendas]].