(1) In the Philippines, double taxation shall be eliminated as
follows:
Subject to the laws of the Philippines and the limitations thereof
regarding the allowance of a credit against Philippine tax of tax
payable in any country other than the Philippines, German tax
payable in respect of income derived from the Federal Republic
of Germany shall be allowed as credit against the Philippine tax
payable in respect of that income.
(2) 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 ba-
sis of the German tax any item of income arising in the Philip-
pines and any item of capital situated within the Philippines
which, according to this Agreement, may be taxed in the
Philippines.
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 Philippines 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 sen-
tences.
(b) Subject to the provisions of German tax law regarding credit
for foreign tax, there shall be allowed as a credit against Ger-
man tax on income payable in respect of the following items
of income the Philippines tax paid under the laws of the
Philippines and in accordance with this Agreement:
(i) dividends not dealt with in sub-paragraph (a);
(ii) interest;
(iii) royalties;
(iv) items of income that may be taxed in the Philippines
according to paragraph 2 of Article 13;
(v) directors’ fees;
(vi) 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 and to the assets from which such in-
come is derived if the resident of the Federal Republic of Ger-
many 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 Philippines
in the business year for which the dividends were paid was
derived exclusively or almost exclusively from activities with-
in the meaning of nos. 1 to 6 of paragraph 1 of section 8 of
the German Law on External Tax Relations (Aussensteuerge-
setz); 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 immov-
able property (paragraph 1 of Article 13) and of the movable
property forming part of the business property of the perma-
nent establishment (paragraph 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 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)
(i) if in the Contracting States items of income or capital are
placed under differing provisions of this Agreement or at-
tributed to different persons (except pursuant to Article 9)
and this conflict cannot be settled by a procedure in ac-
cordance with paragraph 3 of Article 26 and if as a result
of this difference in placement or attribution the relevant
income or capital would remain untaxed or be taxed low-
er than without this conflict or
(ii) if after due consultation with the competent authority of
the Philippines, the Federal Republic of Germany notifies
the Philippines 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.