1. Tax shall be determined in the case of a resident of the Fed-
eral 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 the Republic
of Korea and any item of capital situated within the Republic
of Korea which, according to this Agreement, may be taxed in
the Republic of Korea. The Federal Republic of Germany,
however, retains the right to take into account in the determi-
nation of its rate of tax the items of income and capital so
exempted. 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 resi-
dent of the Federal Republic of Germany by a company being
a resident of the Republic of Korea at least 25 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 Korean tax paid under the laws of the Republic
of Korea and in accordance with this Agreement:
aa) dividends not dealt with in sub-paragraph (a) above;
bb) interest;
cc) royalties;
dd) items of income that may be taxed in the Republic of
Korea according to paragraph 2 of Article 13;
ee) items of income that may be taxed in the Republic of
Korea according to paragraph 3 of Article 15;
ff)
directors’ fees;
gg) items of income of artistes and sportsmen.
(c) The provisions of sub-paragraph (b) above shall apply
instead of the provisions of sub-paragraph (a) above 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 Fed-
eral 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 the Republic of Korea in the business year for which
the dividends were paid was derived exclusively 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 forming part of the
business property of the permanent establishment (para-
graph 3 of Article 13).
(d) Where a company being a resident of the Federal Republic of
Germany distributes income derived from sources within the
Republic of Korea sub-paragraph (a) shall not preclude the
compensatory imposition of corporation tax on such distribu-
tions in accordance with the provisions of German tax law.
(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 Arti-
cle 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 lowly; or
bb) if after due consultation with the competent authority of
the Republic of Korea, the Federal Republic of Germany
notifies the Republic of Korea, through the diplomatic
channel, of other items of income to which it intends to
apply the provisions of sub-paragraph (b). Double taxa-
tion is then avoided for the notified income by allowing a
tax credit from the first day of the calendar year in which
the notification was made.
(f) For the purpose of tax credit referred to in aa), bb) and cc) of
sub-paragraph (b), the Korean 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 appli-
cable 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 December 2003.
2. Subject to the provisions of Korean tax law regarding the
allowance as a credit against Korean tax of tax payable in any
country other than the Republic of Korea (which shall not affect
the general principle hereof):
Where a resident of the Republic of Korea derives income which
may be taxed in the Federal Republic of Germany under the laws
of the Federal Republic of Germany in accordance with the pro-
visions of the Agreement, in respect of that income, the amount
of German tax payable shall be allowed as a credit against the
Korean tax payable imposed on that resident. The amount of
credit shall not, however, exceed that part of Korean tax as
computed before the credit is given, which is appropriate to that
income.