1. Except as otherwise provided in this Article, a resident of
one of the Contracting States that derives income from the
other Contracting State shall be entitled, in that other
Contracting State, to all the benefits of this Convention
otherwise accorded to residents of a Contracting State only if
such resident is a “qualified person” as defined in paragraph 2
of this Article and satisfies any other conditions specified in the
Convention for the obtaining of such benefits.
2. A resident of one of the Contracting States is a qualified
person for a taxable year only if such resident is either:
a) an individual;
b) a Contracting State, political subdivision or local authority
thereof;
c) a company, if
aa) its principal class of shares (and any disproportionate
class of shares) is regularly traded on one or more
recognized stock exchanges, and either
A) its principal class of shares is primarily traded on a
recognized stock exchange located in the
Contracting State of which the company is a
resident; or
B) the company’s primary place of management and
control is in the Contracting State of which it is a
resident; or
bb) shares representing at least 50 percent of the aggregate
voting power and value (and at least 50 percent of any
disproportionate class of shares) of the company are
owned directly or indirectly by five or fewer companies
entitled to benefits under clause aa) of this sub-
paragraph, provided that, in the case of indirect owner-
ship, each intermediate owner is a resident of either
Contracting State;
d) an entity organized under the laws of one of the Contracting
States and established and maintained in that Contracting
State exclusively for a religious, charitable, educational,
scientific, or other similar purpose;
e) an entity organized under the laws of one of the Contracting
States and established and maintained in that Contracting
State to provide, pursuant to a plan, pensions or other
similar benefits to employed and self-employed persons,
provided that:
aa) more than 50 percent of the entity’s beneficiaries,
members or participants are individuals resident in
either Contracting State; or
bb) the organization sponsoring such person is entitled to
the benefits of the Convention pursuant to this
paragraph; or
f) a person other than an individual, if:
aa) on at least half the days of the taxable year at least
50 percent of each class of shares or other beneficial
interests in the person is owned, directly or indirectly,
by residents of that Contracting State that are entitled
to the benefits of this Convention under sub-
paragraph a), subparagraph b), clause aa) of sub-
paragraph c), subparagraph d) or subparagraph e) of
this paragraph, provided that, in the case of indirect
ownership, each intermediate owner is a resident of
that Contracting State; and
bb) less than 50 percent of the person’s gross income for
the taxable year is paid or accrued, directly or
indirectly, to persons who are not residents of either
Contracting State entitled to the benefits of this
Convention under subparagraph a), subparagraph b),
clause aa) of subparagraph c), subparagraph d) or sub-
paragraph e) of this paragraph in the form of payments
that are deductible for purposes of the taxes covered
by this Convention in the person’s State of residence.
3. Notwithstanding that a company that is a resident of a
Contracting State may not be a qualified person, it shall be
entitled to all the benefits of this Convention otherwise
accorded to residents of a Contracting State with respect to an
item of income if it satisfies any other specified conditions for
the obtaining of such benefits and:
a) shares representing at least 95 percent of the aggregate
voting power and value (and at least 50 percent of any
disproportionate class of shares) of the company are
owned, directly or indirectly, by seven or fewer persons who
are equivalent beneficiaries; and
b) less than 50 percent of the company’s gross income for the
taxable year in which the item of income arises is paid or
accrued, directly or indirectly, to persons who are not
equivalent beneficiaries, in the form of payments that are
deductible for the purposes of the taxes covered by this
Convention in the Contracting State of which the company
is a resident.
4.
a) Notwithstanding that a resident of a Contracting State may
not be a qualified person, it shall be entitled to all the
benefits of this Convention otherwise accorded to residents
of a Contracting State with respect to an item of income
derived from the other Contracting State, if the resident is
engaged in the active conduct of a trade or business in the
first-mentioned Contracting State (other than the activities
of making or managing investments for the resident’s own
account, unless these activities are banking, insurance or
securities dealing carried on by a bank, insurance company
or registered securities dealer), the income derived from the
other Contracting State is derived in connection with, or is
incidental to, that trade or business and that resident
satisfies any other specified conditions for the obtaining of
such benefits.
b) If a resident of one of the Contracting States or any of its
associated enterprises carries on a trade or business
activity in the other Contracting State which gives rise to an
item of income, subparagraph a) of this paragraph shall
apply to such item only if the trade or business activity in the
first-mentioned Contracting State is substantial in relation to
the trade or business activity in the other Contracting State.
c) In determining whether a person is engaged in the active
conduct of a trade or business in a Contracting State under
subparagraph a) of this paragraph, activities conducted by
persons connected to such person shall be deemed to be
conducted by such person. A person shall be connected to
another if one possesses at least 50 percent of the
beneficial interest in the other (or, in the case of a company,
shares representing at least 50 percent of the aggregate
voting power and value of the company or of the beneficial
equity interest in the company) or another person possesses,
directly or indirectly, at least 50 percent of the bene-
ficial interest (or, in the case of a company, shares represent-
ing at least 50 percent of the aggregate voting power and
value of the company or of the beneficial equity interest in
the company) in each person. In any case, a person shall be
considered to be connected to another if, on the basis of all
the facts and circumstances, one has control of the other or
both are under the control of the same person or persons.
5. Notwithstanding the preceding provisions of this Article,
where an enterprise of a Contracting State derives income from
the other Contracting State, and that income is attributable to a
permanent establishment which that enterprise has in a third
jurisdiction, the tax benefits that would otherwise apply under
the other provisions of the Convention will not apply to that
income if the combined tax that is actually paid with respect to
such income in the first-mentioned Contracting State and in the
third jurisdiction is less than 60 percent of the tax that would
have been payable in the first-mentioned State if the income
were earned in that Contracting State by the enterprise and
were not attributable to the permanent establishment in the
third jurisdiction. Any dividends, interest or royalties to which
the provisions of this paragraph apply shall be subject to tax at
a rate that shall not exceed 15 percent of the gross amount
thereof. Any other income to which the provisions of this
paragraph apply will be subject to tax under the provisions of
the domestic law of the other Contracting State, notwithstand-
ing any other provision of the Convention. The provisions of this
paragraph shall not apply if:
a) in the case of royalties, the royalties are received as
compensation for the use of, or the right to use, intangible
property produced or developed by the permanent
establishment itself; or
b) in the case of any other income, the income derived from
the other Contracting State is derived in connection with, or
is incidental to, the active conduct of a trade or business
carried on by the permanent establishment in the third
jurisdiction (other than the business of making, managing or
simply holding investments for the person’s own account,
unless these activities are banking or securities activities
carried on by a bank or registered securities dealer).
6. Notwithstanding the preceding provisions of this Article, a
German Investment Fund or German Investmentaktien-
gesellschaft (collectively referred to as Investmentvermögen)
may only be granted the benefits of this Convention if at least
90 percent of the shares or other beneficial interests in the
German Investmentvermögen are owned, directly or indirectly,
by residents of the Federal Republic of Germany that are enti-
tled to the benefits of this Convention under subparagraph a),
subparagraph b), clause aa) of subparagraph c), subpara-
graph d) or subparagraph e) of paragraph 2 of this Article or by
persons that are equivalent beneficiaries with respect to the in-
come derived by the German Investmentvermögen for which
benefits are being claimed. For the purposes of this paragraph,
beneficiaries of entities that are subject to numbers 3 and 5 of
paragraph 1 of section 1 of the German Corporate Tax Act shall
be treated as indirectly owning shares of a German Invest-
mentvermögen. Foundations referred to in number 5 of para-
graph 1 of section 1 of the German Corporate Tax Act, other
than those referred to in subparagraph d) of paragraph 2 of this
Article, shall not be taken into account in determining whether a
German Investmentvermögen meets the 90 percent minimum
ownership threshold.
7. A person resident of one of the Contracting States, who is
not entitled to some or all of the benefits of this Convention
because of the foregoing paragraphs, may, nevertheless, be
granted benefits of this Convention if the competent authority of
the Contracting State in which the income in question arises so
determines. In making such determination, the competent
authority shall take into account as its guidelines whether the
establishment, acquisition or maintenance of such person or
the conduct of its operations has or had as one of its principal
purposes the obtaining of benefits under this Convention. The
competent authority of the Contracting State in which the
income arises will consult with the competent authority of the
other Contracting State before denying the benefits of the
Convention under this paragraph.
8. For the purposes of this Article the following rules and
definitions shall apply:
a) the term “recognized stock exchange” means:
aa) the NASDAQ System and any stock exchange register-
ed with the U.S. Securities and Exchange Commission
as a national securities exchange under the U.S.
Securities Exchange Act of 1934;
bb) any German stock exchange on which registered
dealings in shares take place;
cc) any other stock exchange which the competent author-
ities agree to recognize for the purposes of this Article;
b)
aa) the term “principal class of shares” means the ordinary
or common shares of the company, provided that such
class of shares represents the majority of the voting
power and value of the company. If no single class of
ordinary or common shares represents the majority of
the aggregate voting power and value of the company,
the “principal class of shares” is that class or those
classes that in the aggregate represent a majority of the
aggregate voting power and value of the company;
bb) the term “shares” shall include depository receipts
thereof or trust certificates thereof;
c) the term “disproportionate class of shares” means any class
of shares of a company resident in one of the Contracting
States that entitles the shareholder to disproportionately
higher participation, through dividends, redemption
payments or otherwise, in the earnings generated in the
other Contracting State by particular assets or activities of
the company;
d) the company’s primary place of management and control
will be in the Contracting State of which it is a resident only
if executive officers and senior management employees
exercise day-to-day responsibility for more of the strategic,
financial and operational policy decision making for the
company (including its direct and indirect subsidiaries) in
that Contracting State than in any other state and the staffs
conduct more of the day-to-day activities necessary for
preparing and making those decisions in that Contracting
State than in any other state;
e) an equivalent beneficiary is a resident of a member state of
the European Union or of a European Economic Area state
or of a party to the North American Free Trade Agreement
but only if that resident:
aa)
A) would be entitled to all the benefits of a
comprehensive convention for the avoidance of
double taxation between any member state of the
European Union or a European Economic Area
state or any party to the North American Free Trade
Agreement and the State from which the benefits of
this Convention are claimed under provisions
analogous to subparagraph a), subparagraph b),
clause aa) of subparagraph c), subparagraph d) or
subparagraph e) of paragraph 2 of this Article
provided that if such convention does not contain a
comprehensive limitation on benefits article, the
person would be a qualified person under subpara-
graph a), subparagraph b), clause aa) of subpara-
graph c), subparagraph d) or subparagraph e) of
paragraph 2 of this Article if such person were a
resident of one of the States under Article 4
(Resident) of this Convention; and
B) with respect to insurance premiums and to income
referred to in Article 10 (Dividends), 11 (Interest) or
12 (Royalties) of this Convention, would be entitled
under such convention to a rate of tax with respect
to the particular class of income for which benefits
are being claimed under this Convention that is at
least as low as the rate applicable under this
Convention; or
bb) is a resident of a Contracting State that is a qualified
person by reason of subparagraph a), subparagraph b),
clause aa) of subparagraph c), subparagraph d) or sub-
paragraph e) of paragraph 2 of this Article.
For the purposes of applying paragraph 3 of Article 10
(Dividends) in order to determine whether a person, owning
shares, directly or indirectly, in the company claiming the
benefits of this Convention, is an equivalent beneficiary,
such person shall be deemed to hold the same voting power
in the company paying the dividend as the company claim-
ing the benefits holds in such company;
f) with respect to dividends, interest or royalties arising in the
Federal Republic of Germany and beneficially owned by a
company that is a resident of the United States, a company
that is a resident of a member state of the European Union
will be treated as satisfying the requirements of clause aa) B)
of subparagraph e) for purposes of determining whether
such United States resident is entitled to benefits under this
paragraph if a payment of dividends, interest or royalties
arising in the Federal Republic of Germany and paid direct-
ly to such resident of a member state of the European Union
would have been exempt from tax pursuant to any directive
of the European Union, notwithstanding that the income tax
convention between the Federal Republic of Germany and
that other member state of the European Union would pro-
vide for a higher rate of tax with respect to such payment
than the rate of tax applicable to such United States com-
pany under Article 10 (Dividends), 11 (Interest), or 12 (Royal-
ties) of this Convention.