(1) Tax shall be determined in the case of a resident of
Germany 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 Hungary and
any item of capital situated within Hungary which, according
to this Agreement, is effectively taxed in Hungary. 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 Hungary at least 10 per cent of
the capital of which is owned directly by the German com-
pany 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 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 Hungarian tax paid under the laws of
Hungary and in accordance with this Agreement:
aa) dividends not dealt with in sub-paragraph a);
bb) items of income that may be taxed in Hungary according
to paragraph 2 of Article 13;
cc) items of income that may be taxed in Hungary according
to paragraph 3 of Article 14;
dd) directors’ fees;
ee) items of income that may be taxed according to
Article 16.
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 in-
come 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 Hungary 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 property forming part of
the business property of the permanent establishment
(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 sub-paragraph a) double
taxation shall be avoided by allowing a tax credit as laid down
in sub-paragraph 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 attribution
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 Hungary 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 income by allowing a tax credit from the first day
of the calendar year, next following that in which the
notification was received and all legal requirements
according to the internal law of Germany are fulfilled.
(2) Tax shall be determined in the case of a resident of
Hungary as follows:
a) Where a resident of Hungary derives income or owns capital
which, in accordance with the provisions of this Agreement
may be taxed in Germany, Hungary shall, subject to the
provisions of sub-paragraphs b) and c), exempt such income
or capital from tax.
b) Where a resident of Hungary derives items of income which,
in accordance with the provisions of Article 10, may be taxed
in Germany, Hungary 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 items of income derived
from Germany.
c) Where in accordance with any provision of the Agreement
income derived or capital owned by a resident of Hungary is
exempt from tax in Hungary, Hungary may nevertheless, in
calculating the amount of tax on the remaining income or
capital of such resident, take into account the exempted
income or capital.
d) The provisions of sub-paragraph a) shall not apply to income
derived or capital owned by a resident of Hungary where
Germany applies the provisions of this Convention to exempt
such income or capital from tax or applies the provisions of
paragraph 2 of Article 10 to such income.