1. In accordance with the provisions and subject to the
limitations of the law of the United States (as it may be
amended from time to time without changing the general
principle hereof), the United States shall allow to a resident or
citizen of the United States as a credit against the United States
tax on income:
a) the income tax paid or accrued to the Federal Republic of
Germany by or on behalf of such resident or citizen; and
b) in the case of a United States company owning at least
10 percent of the voting stock of a company that is a
resident of the Federal Republic of Germany and from which
the United States company receives dividends, the income
tax paid or accrued to the Federal Republic of Germany by
or on behalf of the payer with respect to the profits out of
which the dividends are paid.
For the purposes of this paragraph, the taxes referred to in sub-
paragraph b) of paragraph 1 of Article 2 (Taxes Covered) and
paragraph 2 of Article 2, other than the capital tax (Vermögen-
steuer), shall be considered income taxes.
2. For the purposes of applying paragraph 1 of this Article,
an item of gross income, as determined under the laws of the
United States, derived by a resident of the United States that,
under this Convention, may be taxed in the Federal Republic of
Germany shall be deemed to be income from sources in the
Federal Republic of Germany.
3. Where a resident of the Federal Republic of Germany
derives income or owns capital which, in accordance with the
provisions of this Convention, may be taxed in the United
States or is exempt from United States tax under paragraph 3 of
Article 10 (Dividends), tax shall be determined as follows:
a) Except as provided in subparagraph b), the income or
capital shall be excluded from the basis upon which German
tax is imposed. The Federal Republic of Germany, however,
retains the right to take into account in the determination of
its rate of tax items of income and capital excluded under
the provisions of this Convention. In the case of income
from dividends the foregoing provisions shall apply only to
such income from distributions of profits on corporate rights
subject to corporate income tax under United States law 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 States at least 10 percent of
the voting shares of which is owned directly by the German
company. The exclusion provided by the first sentence of
this subparagraph shall not apply to dividends paid by a
U. S. Regulated Investment Company (RIC) or a U. S. Real
Estate Investment Trust (REIT) and distributions that are
deductible for United States tax purposes by the company
distributing them. For the purposes of taxes on capital there
shall also be excluded from the basis upon which German
tax is imposed any shareholding the dividends of which, if
paid, would be excluded, according to the two immediately
foregoing sentences, from the basis upon which German tax
is imposed.
b) There shall be allowed as a credit against German tax on
income, subject to the provisions of German tax law
regarding credit for foreign tax, the United States tax paid in
accordance with the law of the United States and with the
provisions of this Convention on the following items of
income:
aa) income from dividends within the meaning of Article 10
(Dividends) to which subparagraph a) does not apply;
bb) gains to which Article 13 (Gains) applies provided such
gains are taxable in the United States by reason only of
subparagraph b) of paragraph 2 of Article 13;
cc) income to which Article 16 (Directors’ Fees) applies;
dd) income to which Article 17 (Artistes and Athletes)
applies;
ee) income which would, but for Article 28 (Limitation on
Benefits), remain exempt from United States tax under
this Convention.
For the purposes of this paragraph, income, profit or gain
derived by a resident of the Federal Republic of Germany that,
under this Convention, may be taxed in the United States shall
be deemed to be income from sources within the United States.
4.
a) Notwithstanding subparagraph a) of paragraph 3, double
taxation shall be avoided by a credit as provided for in
subparagraph b) of paragraph 3, if income or capital would
be subject to double taxation due to the placement of such
income or capital under different provisions of the
Convention and this conflict cannot be settled by a
procedure pursuant to Article 25 (Mutual Agreement
Procedure).
b) The provisions of subparagraph b) and not the provisions of
subparagraph a) of paragraph 3 shall apply to income or
capital where the United States applies the provisions of the
Convention to exempt such income or capital from tax, or
applies paragraphs 2 or 3 of Article 10 (Dividends) to such
income, or may under the provisions of the Convention tax
such income or capital but is prevented from doing so under
its laws.
c) The provisions of subparagraph b) and not the provisions of
subparagraph a) of paragraph 3 shall apply to items of
income or capital of which the Federal Republic of Germany
has, after due consultation, notified the United States
through diplomatic channels. In such a case, the provisions
of subparagraph b) shall apply for any taxable year following
the year of such notification.
5. Where a United States citizen is a resident of the Federal
Republic of Germany:
a) With respect to items of income not excluded from the basis
of German tax under paragraph 3 that are exempt from
United States tax or that are subject to a reduced rate of
United States tax when derived by a resident of the Federal
Republic of Germany who is not a United States citizen, the
Federal Republic of Germany shall allow as a credit against
German tax, subject to the provisions of German tax law
regarding credit for foreign tax, only the tax paid, if any, that
the United States may impose under the provisions of this
Convention, other than taxes that may be imposed solely by
reason of citizenship under paragraph 4 of Article 1
(General Scope);
b) For purposes of computing United States tax, the United
States shall allow as a credit against United States tax the
income tax paid to the Federal Republic of Germany after
the credit referred to in subparagraph a); the credit so
allowed shall not reduce that portion of the United States
tax that is creditable against the German tax in accordance
with subparagraph a); and
c) For the exclusive purpose of relieving double taxation in the
United States under subparagraph b), items of income
referred to in subparagraph a) shall be deemed to arise in
the Federal Republic of Germany to the extent necessary to
avoid double taxation of such income under subpara-
graph b).