(1) Tax shall be determined in the case of a resident of the
Federal Republic 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
Malaysia which, according to this Agreement, may be taxed
in Malaysia. 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 compa-
ny being a resident of Malaysia 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.
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 Malaysian tax paid under the laws of
Malaysia and in accordance with this Agreement:
aa) dividends not dealt with in sub-paragraph a);
bb) interest;
cc) royalties and fees for technical services;
dd) items of income that may be taxed in Malaysia accord-
ing to paragraph 2 of Article 13;
ee) directors’ fees;
ff)
items of income in the meaning of Article 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 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 realised or of the company resi-
dent in Malaysia in the business year for which the divi-
dends were paid was derived exclusively or almost exclu-
sively from activities within the meaning of numbers 1 to 6 of
paragraph 1 of section 8 of the German Law on External Tax
Relations (Aussensteuergesetz); the same shall apply to
income from 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 forming part of the
business property of the permanent establishment (para-
graph 3 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, 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 is placed
under differing provisions of this Agreement or attrib-
uted to different persons (except pursuant to Article 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 would remain untaxed or be taxed
lower than without this conflict; or
bb) if after due consultation with the competent authority of
Malaysia the Federal Republic of Germany notifies
Malaysia through diplomatic channels 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.
f)
For the purpose of tax credit referred to in sub-sub para-
graphs aa), bb) and cc) of sub-paragraph b), the Malaysian
tax shall, irrespective of the amount of tax actually paid, be
deemed to have been paid in the amount as high as the
amount resulting from the applicable tax rates at source
mentioned in Articles 10, 11 and 12 of this Agreement as the
case may be. This sub-paragraph shall cease to have effect
concerning income which arise or accrue after 31 Decem-
ber 2010.
(2) Tax shall be determined in the case of a resident of
Malaysia as follows:
Subject to the laws of Malaysia regarding the allowance as a
credit against Malaysian tax of tax payable in any country other
than Malaysia, the German tax payable under the laws of the
Federal Republic of Germany and in accordance with this
Agreement by a resident of Malaysia in respect of income
derived from the Federal Republic of Germany shall be allowed
as a credit against Malaysian tax payable in respect of that
income. Where such income 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 Malaysia and which owns not
less than 10 per cent of the voting shares of the company pay-
ing the dividend, the credit shall take into account the German
tax payable by that company in respect of its income out of
which the dividend is paid. The credit shall not, however,
exceed that part of the Malaysian tax, as computed before the
credit is given, which is appropriate to such item of income.