(1) Subject to the provisions of the laws of Japan regarding
the allowance as a credit against Japanese tax of tax payable in
any country other than Japan, where a resident of Japan derives
income from the Federal Republic of Germany which may be
taxed in the Federal Republic of Germany in accordance with the
provisions of this Agreement, the amount of German tax payable
in respect of that income shall be allowed as a credit against the
Japanese tax imposed on that resident. The amount of credit,
however, shall not exceed the amount of the Japanese tax which
is appropriate to that income.
(2) Where a resident of the Federal Republic of Germany
derives income which, in accordance with the provisions of this
Agreement, may be taxed in Japan or is exempt from Japanese
tax under the provisions of paragraph 3 of Article 10, the follow-
ing shall apply:
a) Except as provided in subparagraph c), the income shall be
exempted from the basis upon which German tax is imposed.
In the case of dividends, this applies only to such dividends
as are paid to a company (other than a partnership) being a
resident of the Federal Republic of Germany by a company
being a resident of Japan at least 10 percent of the capital of
which is owned directly by the company being a resident of
the Federal Republic of Germany. The exemption from the
basis provided by the first sentence of this subparagraph
shall not apply to dividends paid by a tax exempt company,
to dividends that the distributing company may deduct for
Japanese tax purposes or to dividends that are attributed
under the law of the Federal Republic of Germany to a person
that is not a company being a resident of the Federal Republic
of Germany.
b) The Federal Republic of Germany retains the right to take into
account in the determination of its rate of tax the items of
income which under the provisions of the Agreement are
exempted from German tax.
c) With respect to the following items of income, there shall be
allowed as a credit against German tax on income, subject
to the provisions of German tax law regarding credit for
foreign tax, Japanese tax paid under the laws of Japan and
in accordance with the provisions of the Agreement on such
items of income:
i)
dividends within the meaning of Article 10 to which sub-
paragraph a) does not apply;
ii) capital gains to which paragraph 2 of Article 13 applies;
iii) income to which Article 15 applies;
iv) income to which Article 16 applies;
v) income to which paragraph 1 of Article 17 applies.
For the purposes of application of this subparagraph, income
of a resident of the Federal Republic of Germany that, under
the Agreement, may be taxed in Japan shall be deemed to
be income from sources within Japan.
d) The provisions of subparagraph a) are to be applied to items
of profits or income within the meaning of Article 7 and Arti-
cle 10 and to gains from the alienation of property within the
meaning of paragraph 3 of Article 13 only to the extent that
the items of profits, income or gains were derived from the
production, processing, working or assembling of goods and
merchandise, the exploration and extraction of natural
resources, banking and insurance, trade or the rendering of
services or if the items of profits, income or gains are eco-
nomically attributable to these activities. This applies only if
a business undertaking that is adequately equipped for its
business purpose exists. If the provisions of subparagraph a)
are not to be applied, double taxation shall be eliminated by
means of a tax credit as provided for in subparagraph c).
e) Notwithstanding subparagraph a), double taxation shall be
eliminated by a tax credit as provided for in subparagraph c),
if:
i)
in the Contracting States items of income or elements
thereof are placed under different provisions of the Agree-
ment and if, as a consequence of this different placement,
such income would be subject to double taxation, non-
taxation or lower taxation and in the case of double tax-
ation this conflict cannot be resolved by a procedure pur-
suant to paragraph 2 or 3 of Article 24;
ii) Japan may, under the provisions of the Agreement, tax
items of income or elements thereof but does not actually
do so; or
iii) after consultation, the Federal Republic of Germany noti-
fies Japan through diplomatic channels of items of in-
come or elements thereof to which it intends to apply the
provisions on tax credit under subparagraph c). Double
taxation is then eliminated for the notified items of income
or elements thereof by allowing a tax credit from the first
day of January in the calendar year next following that in
which the notification was made.