(1) In the case of Germany, double taxation shall be eliminat-
ed as follows:
a) Unless foreign tax credit is to be allowed under subpara-
graph b), there shall be exempted from the assessment
basis of the German tax any item of income arising in Bul-
garia and any item of capital situated within Bulgaria which,
according to this Agreement, is effectively taxed in Bulgaria.
In the case of items of income from dividends the preceding
provision shall apply only to such dividends as are paid to a
company (not including partnerships) being a resident of
Germany by a company being a resident of Bulgaria at least
10 per cent of the capital of which is owned directly by the
German company and which were not deducted when
determining the profits of the company distributing these
dividends. There shall be exempted from the assessment
basis of the taxes on capital any shareholding the dividends
of which if paid, would be exempted, according to the fore-
going sentences.
b) Subject to the provisions of German tax law regarding cred-
it for foreign tax, there shall be allowed as a credit against
German tax on income payable in respect of the following
items of income the Bulgarian tax paid under the laws of
Bulgaria and in accordance with this Agreement:
aa) dividends not dealt with in subparagraph a);
bb) interest;
cc) royalties;
dd) items of income that may be taxed in Bulgaria accord-
ing to paragraph 2 of Article 13;
ee) items of income that may be taxed in Bulgaria accord-
ing to paragraph 3 of Article 14;
ff)
directors’ fees;
gg) items of income that may be taxed according to Ar-
ticle 16.
c) The provisions of subparagraph b) shall apply instead of the
provisions of subparagraph a) to items of income as defined
in Articles 7 and 10 and to the assets from which such
income is derived if the resident of Germany does not prove
that the gross income of the permanent establishment in the
business year in which the profit has been realised or of the
company resident in Bulgaria in the business year for which
the dividends were paid was derived exclusively or almost
exclusively from activities within the meaning of nos. 1 to 6
of paragraph 1 of section 8 of the German Law on External
Tax Relations (Aussensteuergesetz); the same shall apply to
immovable property used by a permanent establishment
and to income from this immovable property of the perma-
nent establishment (paragraph 4 of Article 6) and to profits
from the alienation of such immovable property (para-
graph 1 of Article 13) and of the movable property forming
part of the business property of the permanent establish-
ment (paragraph 3 of Article 13).
d) Germany, however, retains the right to take into account in
the determination of its rate of tax the items of income and
capital, which are under the provisions of this Agreement
exempted from German tax.
e) Notwithstanding the provisions of subparagraph a) double
taxation shall be avoided by allowing a tax credit as laid
down in subparagraph b)
aa) if in the Contracting States items of income or capital
are placed under differing provisions of this Agreement
or attributed to different persons (except pursuant to
Article 9) and this conflict cannot be settled by a proce-
dure in accordance with paragraph 3 of Article 24 and
if as a result of this difference in placement or attribu-
tion the relevant income or capital would remain
untaxed or be taxed lower than without this conflict or
bb) if the competent authority of Germany notifies the com-
petent authority of Bulgaria of other items of income to
which it intends to apply the provisions of subpara-
graph b). Double Taxation is then avoided for the noti-
fied income by allowing a tax credit from the first day of
the calendar year, next following that in which the noti-
fication was received and all legal requirements
according to the internal law of Germany are fulfilled.
(2) In the case of Bulgaria, double taxation shall be eliminat-
ed as follows:
a) where a resident of Bulgaria derives income which in accor-
dance with the provisions of this Agreement may be taxed in
Germany, Bulgaria shall, subject to the provisions of sub-
paragraphs b) and c) of this paragraph, exempt such
income from tax;
b) where a resident of Bulgaria derives income which in accor-
dance with the provisions of Articles 10, 11 or 12 or para-
graph 2 of Article 13 of this Agreement may be taxed in Ger-
many, Bulgaria shall allow as a deduction from the tax on
the income of that resident an amount equal to the tax paid
in Germany. Such deduction shall not, however, exceed that
part of the tax, as computed before the deduction is given,
which is attributable to such income derived from Germany;
c) where in accordance with any provision of this Agreement
income derived or capital owned by a resident of Bulgaria is
exempt from tax in Bulgaria, Bulgaria may nevertheless, in
calculating the amount of the tax on the remaining income
or capital of such resident, take into account the exempted
income or capital.