(1) Tax shall be determined in the case of a resident of Ger-
many as follows:
a) There shall be exempted from the assessment basis of the
German tax any item of income arising in the United King-
dom and any item of capital situated within the United King-
dom which, according to this Convention, is effectively taxed
in the United Kingdom and is not dealt with in subpara-
graph b).
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 Ger-
many by a company being a resident of the United Kingdom
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 cred-
it for foreign tax, there shall be allowed as a credit against
German tax payable in respect of the following items of in-
come the United Kingdom tax paid under the laws of the
United Kingdom and in accordance with this Convention:
aa) dividends not dealt with in sub-paragraph a);
bb) items of income that may be taxed in the United King-
dom according to paragraph 2 of Article 13 (Capital
gains);
cc) directors’ fees;
dd) items of income that may be taxed in the United King-
dom according to Article 16 (Artistes and sportsmen).
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 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 Kingdom in the business year
for which the dividends were paid was derived exclusively or
almost exclusively from activities within the meaning of para-
graph 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 (para-
graph 3 of Article 13).
d) 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 Convention
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 different provisions of this Convention
or attributed to different persons (except pursuant to
Article 9) and this conflict cannot be settled by a proced -
ure in accordance 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 lower than without this conflict or
bb) if after due consultation with the competent authority of
the United Kingdom, Germany notifies the United King-
dom 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 following that in which the
notification was made.
(2) Subject to the provisions of the law of the United Kingdom
regarding the allowance as a credit against United Kingdom tax
of tax payable in a territory outside the United Kingdom (which
shall not affect the general principle hereof):
a) German tax payable under the laws of Germany and in
accordance with this Convention, whether directly or by
deduction, on profits, income or chargeable gains from
sources within Germany (excluding in the case of a dividend,
tax payable in respect of the profits out of which the dividend
is paid) shall be allowed as a credit against any United King-
dom tax computed by reference to the same profits, income
or chargeable gains by reference to which the German tax is
computed;
b) in the case of a dividend paid by a company which is a resi-
dent of Germany to a company which is a resident of the
United Kingdom and which controls directly or indirectly at
least 10 per cent of the voting power in the company paying
the dividend, the credit shall take into account (in addition to
any German tax for which credit may be allowed under the
provisions of sub-paragraph a)) the German tax payable by
the company in respect of the profits out of which such
dividend is paid.
(3) For the purposes of paragraph 2, profits, income and
capital gains owned by a resident of the United Kingdom which
may be taxed in Germany in accordance with this Convention
shall be deemed to arise from sources in Germany.