1. In China, in accordance with the provisions of the law of
China, double taxation shall be eliminated as follows:
a) Where a resident of China derives income from the Federal
Republic of Germany, the amount of tax on that income
payable in the Federal Republic of Germany in accordance
with the provisions of this Agreement may be credited
against the Chinese tax imposed on that resident. The
amount of the credit, however, shall not exceed the amount
of the Chinese tax on that income computed in accordance
with the taxation laws and regulations of China.
b) Where the income derived from the Federal Republic of
Germany is a dividend paid by a company which is a resident
of the Federal Republic of Germany to a company which is a
resident of China and which owns not less than 20 per cent
of the shares of the company paying the dividend, the credit
shall take into account the tax paid to the Federal Republic
of Germany by the company paying the dividend in respect
of its income.
2. In the Federal Republic of Germany, in accordance with the
provisions of the law of the Federal Republic of Germany, double
taxation shall be eliminated as follows:
a) Unless foreign tax credit is to be allowed under sub-para-
graph b), there shall be exempted from the assessment basis
of the German tax any item of income arising in China and
any item of capital situated within China which, according to
this Agreement, may be taxed in China.
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 the
Federal Republic of Germany by a company being a resident
of China at least 25 per cent of the capital of which is owned
directly by the German company and which were not deduct-
ed 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 foregoing
sentences.
b) Subject to the provisions of German tax law regarding credit
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 Chinese tax paid under the laws of China
and in accordance with this Agreement:
(i)
dividends not dealt with in sub-paragraph a);
(ii)
interest;
(iii) royalties;
(iv) items of income that may be taxed in China according
to paragraphs 4 and 5 of Article 13;
(v)
directors’ fees;
(vi) items of income that may be taxed according to Arti-
cle 17.
c) The provisions of sub-paragraph b) shall apply instead of the
provisions of sub-paragraph 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 the Federal Republic of
Germany does not prove that the gross income of the per-
manent establishment in the business year in which the profit
has been realised or of the company resident in China 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 permanent establishment (paragraph 4 of
Article 6) and to profits from the alienation of such immovable
property (paragraph 1 of Article 13) and of the movable prop-
erty forming part of the business property of the permanent
establishment (paragraph 2 of Article 13).
d) The Federal Republic of 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 sub-paragraph a), double
taxation shall be avoided by allowing a tax credit as laid
down in sub-paragraph b)
i)
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 25 and if
as a result of this difference in placement or attribution
the relevant income or capital would remain untaxed or
be taxed lower than without this conflict or
ii)
if after due consultation with the competent authority of
China, the German competent authority notifies the
Chinese competent authority in writing of other items of
income to which it intends to apply the provisions of
sub-paragraph b). Double taxation is then avoided for
the notified item of income by allowing a tax credit from
the first day of the calendar year next following that in
which the notification was made.