1. Tax shall be determined in the case of a resident of the Fed-
eral Republic of Germany as follows:
(a) Unless the provisions of sub-paragraph b) apply, there shall
be excluded from the basis upon which German tax is
imposed, any item of income arising in the State of Kuwait
and any item of capital situated within the State of Kuwait,
which, according to this Agreement, may be taxed in the
State of Kuwait. 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 so excluded.
In the case of income from dividends the foregoing provisions
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 the
State of Kuwait at least 10 % of the capital of which is owned
directly by the German company.
For the purpose of taxes on capital there shall also be ex-
cluded from the basis upon which German tax is imposed
any shareholding, the dividends of which are excluded or, if
paid, would be excluded, according to the immediately fore-
going sentence, from the basis upon which German tax is
imposed.
(b) Subject to the provisions of German tax law regarding credit
for foreign tax, there shall be allowed as a credit against Ger-
man income and corporation tax payable in respect of the fol-
lowing items of income arising in the State of Kuwait, the tax
paid under the laws of the State of Kuwait and in accordance
with this Agreement on:
(1) dividends not dealt with in sub-paragraph a);
(2) royalties to which Article 12 applies;
(3) remuneration to which Article 16 applies;
(4) income to which Article 17 applies;
(5) income from immovable property to which Article 6
applies. This shall not apply if the immovable property
from which such income arises is effectively connected
with a permanent establishment referred to in Article 7
and situated in the State of Kuwait or with a fixed base
referred to in Article 14 and situated in the State of
Kuwait, unless the provisions of sub-paragraph (c) pre-
clude the application of the provisions of sub-para-
graph (a) to the profits of the permanent establishment.
(c) The provisions of sub-paragraph (b) above shall apply
instead of the provision of sub-paragraph (a) above to items
of income as defined in Articles 7 and 10 to profits from the
alienation of the business property of a permanent establish-
ment and to the assets from which such profits are derived if
the resident of the Federal Republic of Germany does not
prove that the gross income of the permanent establishment
in the business year in which the profit has been realized or of
the company resident in the State of Kuwait in the business
year for which the dividends were paid was derived ex-
clusively or almost exclusively from activities within the
meaning of Section 8 paragraph 1 nos. 1 to 6 of the German
Law on External Tax Relations (Aussensteuergesetz) or from
participations within the meaning of Section 8 paragraph 2 of
that Law; the same shall apply to immovable property used
by a 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 form-
ing part of the business property of the permanent establish-
ment (paragraph 2 of Article 13).
(d) Notwithstanding the provisions of sub-paragraph (a) above
double taxation shall be avoided by allowing a tax credit as
laid down in sub-paragraph (b) above:
(1) if in the Contracting States items of income or capital are
placed under differing provisions of the Agreement or
attributed to different persons (except pursuant to Ar-
ticle 9) and this conflict cannot be settled by a procedure
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 too low; or
(2) if after proper consultation and subject to the limitations
of its domestic law the Federal Republic of Germany
notifies the State of Kuwait through diplomatic channels
of other income to which it intends to apply the provisions
of sub-paragraph (b). The notification shall not take effect
until the first day of the calendar year following the year in
which the notification was made and all legal require-
ments under the domestic law of the Federal Republic of
Germany for the notification to take effect have been ful-
filled.
2. Double taxation in the State of Kuwait shall be avoided in
accordance with the following provisions of this Article:
Where a resident of the State of Kuwait derives income or owns
capital which, in accordance with the provisions of this Agree-
ment, may be taxed in both the Federal Republic of Germany and
the State of Kuwait, the State of Kuwait shall allow as a deduc-
tion from the tax on the income of that resident, an amount equal
to the German tax on income paid and the German tax reduced
according to the second sentence of paragraph 2 of Article 10;
and as a deduction from the tax on the capital of that resident an
amount equal to the German capital tax paid.
Such deduction in either case shall not, however, exceed that
part of the tax on income or on capital, as computed before the
deduction is given, which is attributable, as the case may be, to
the income or the capital which may be taxed in the Federal
Republic of Germany.