(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-
paragraph b), there shall be exempted from the assessment
basis of the German tax any item of income arising in the
United Mexican States and any item of capital situated
within the United Mexican States which, according to this
Agreement, may be taxed in the United Mexican States.
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 the United Mexican States 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.
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 Mexican tax paid under the laws of the
United Mexican States and in accordance with this
Agreement:
aa) dividends not dealt with in sub-paragraph a);
bb) interest;
cc) royalties;
dd) items of income that may be taxed in the United
Mexican States according to paragraphs 2 and 3 of
Article 13;
ee) items of income that may be taxed in the United
Mexican States according to paragraph 3 of Article 15;
ff)
directors’ fees;
gg) items of income that may be taxed according to Article 17;
hh) income referred to in paragraph 2 of Article 21.
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
permanent establishment in the business year in which the
profit has been realised or of the company resident in the
United Mexican States 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 4 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)
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
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 lower than without this conflict, or
bb) if after due consultation with the competent authority of
the United Mexican States, the Federal Republic of
Germany notifies the United Mexican States 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
made.
(2) In accordance with the provisions and subject to the
limitations of the laws of the United Mexican States, as may be
amended from time to time without changing the general
principle hereof, the United Mexican States shall allow its
residents as a credit against the Mexican tax:
a) the German tax paid on income arising or capital situated in
the Federal Republic of Germany, in an amount not exceeding
the tax payable in the United Mexican States on such
income or capital; and
b) in the case of a company owning at least 10 per cent of the
capital of a company which is a resident of the Federal
Republic of Germany and from which the first-mentioned
company receives dividends, the German tax paid by the
distributing company with respect to the profits out of which
the dividends are paid.