On 18 January 2017, the CJEU handed down a judgment in the case C 37/16 between the Minister Finansów (Minister for Finance, Poland) and SAWP (society for performers of musical works with or without words, established in Warsaw, Poland), finding that the “holders of reproduction rights do not make a supply of services, within the meaning of that directive [the VAT Directive], to producers and importers of blank media and of recording and reproduction devices […]”.

A variety of different views has been expressed on whether that decision would have any implications for German law, and if so, what these implications would be for German law. Sec. 54ff. German Copyright Act (UrhG) defines that the producers, importers and traders of, for example, television receivers, external hard drives, USB sticks, mobile phones etc. owe a fee to the author of the work (by way of example, see the commentary by Grube in MwStR 2017, 163; Möller in DStRK 2017, 107; Prätzler in jurisPR-SteuerR 17/2017, note 6).

Therefore, it was eagerly awaited which position the courts or, before them, the Conciliation Board of the German Patent and Trademark Office (GPTO), which is the first resort for disputes concerning the obligation to pay fees under Sec. 54ff. UrhG (see Sec. 92 (1) No. 2 German Collecting Societies Act - VGG), will take in this matter. Considering the recent decisions, that question has been answered at least for the Conciliation Board: The Conciliation Board clearly was opposed to VAT on fees payable under Sec. 54ff. UrhG (by way of example, see the Conciliation Board’s settlement proposal of 26 September 2017, Sch-Urh 90/12). The curtain seems to be going down on value-added tax on devices and recording media under German copyright law.

1. Background

Sec. 54(1) UrhG obligates the producers of devices and recording media to pay a reasonable fee to the author of the work where it is likely that the devices or recording media manufactured by them will be used solely or together with other devices, recording media or accessories for making private copies as described in Sec. 53 UrhG. Sec. 54b UrhG extends this obligation to also cover the importers and traders of these devices and recording media, who are liable as joint and several debtors. However, this claim may only be asserted by a collecting society, such as GEMA, VG Wort, VG Bild-Kunst and others (Sec. 54h (1) UrhG).

According to the definition in the German VAT Act (UStG), sec. 3(9) s. 3, the collecting societies and authors supply other services in the cases of Sec. 54 UrhG and other cases. On that basis the collecting societies, most notably the Central Organisation for Private Recording Rights (ZPÜ), traditionally request the producers, importers and traders to pay not only the fees under Sec. 54 UrhG but also the reduced 7% value-added tax rate due on each fee (see Sec. 12(2) No. 7c) UStG).

2. The CJEU decision

First of all, the CJEU in its decision explains that fees on devices and recording media can only be subject to value-added tax if the collecting societies supply “services” within the meaning of the Council Directive 2006/112/EC of 28 November 2006 on the common system of value-added tax (as amended by Council Directive 2010/45/EU of 13 July 2010) to the producers and importers. To that end, there would have to be a legal relationship between (a) the producers and importers as providers of the service and (b) the collecting societies as recipients of the service pursuant to which there is reciprocal performance, which in turn requires that the remuneration received by the producers and importers constitutes the value actually given in return for the service supplied to the collecting societies (CJEU, ibid., sec. 25).

However, the CJEU held that these criteria are not fulfilled in the case underlying the decision as

“it does not appear that there is a legal relationship pursuant to which there is reciprocal performance by, one the one hand, […] the organisation collectively managing such rights and, on the other, producers and importers of blank media and of recording and reproduction devices. Indeed, the obligation to pay fees […] is owed by those producers and importers by virtue of the national legislation […].” (CJEU, ibid., sec. 27f.)

The CJEU further held that, secondly,

“the obligation on producers and importers of blank media and of recording and reproduction devices to pay fees cannot be regarded as resulting from the supply of a service for which it constitutes the direct consideration, as the fees only are intended “to finance fair compensation for holders of reproduction rights. However, the fair compensation does not constitute the direct consideration for any supply of services, because it is linked to the harm resulting for those rightholders from the reproduction of their protected works without their authorisation.” (CJEU, ibid., sec. 29f.)


The CJEU’s decision likely has sealed the fate of value-added tax on copyright fees for devices and recording media, as the provisions of Sec. 3(9) s. 3 UStG are clearly irreconcilable with these legal principles. According to the explanatory memorandum (BT-Drucks. 12/2463, 26), that UStG clause is based on the understanding

“that the fees pursuant to […] Sec. 54 UrhG, […], constitute remuneration for other services and that there is taxable reciprocal performance between the party owing payment [the producers and importers] and the collecting societies as well as between the collecting societies and the authors.”

However, the CJEU clearly rejected this interpretation in its above discussed decision. As a result, the provisions of Sec. 3(9) s. 3 UStG, which have no express basis in European Union law, must be regarded as contrary to EU law (confirmed in Sölch/Ringleb/Martin, UStG, § 3 no. 535 and no. 537).

The GPTO Conciliation Board made this perfectly clear in its most recent decisions. It remains to be seen how the Munich Court of Appeals will respond to this issue. An opportunity to do so is certain to arise in the near future.