The Bavarian finance minister, Albert Füracker, from the state’s Ministry of Finance and Home Affairs stated:
„At Bavaria’s instigation, it has been possible to reach clarification on a national federal level. It is now finally clear that domestic companies do not have to withhold tax on online advertising.“
One of the justifications for this is that a duty to a withholding tax deduction would have meant bureaucratic additional costs and, in numerous cases, substantial additional tax demands.
This resolution on a federal and state level – on which the commissioning of online advertising with the likes of Google does not lead to an obligation to retain withholding tax according to Sec. 50a (1) no. 3 EStG – is logical and corresponds to the current legal situation. With contracts in online advertising, there is essentially either a service or a work contract. As a result, payments to domestic advertisers are seen as classic service fees and not as payments for the transfer of the use of rights, or the right to use them (cf. Diffring/Saft, Der Steuerabzug bei Online-Werbung am Beispiel von Google Ads, Der Betrieb (DB) 2019, p. 387).
It remains to be seen whether this federal-state level decision actually covers all forms of advertising on the internet (such as advertising services by social media ‘influencers’) or whether we can expect further surprises from Germany’s tax authorities on this matter in the future.