ARTICLE 23

Method of Elimination of Double Taxation

(1) With reference to the residents of the Federal Republic of Germany, double taxation shall be avoided in the following manner:

• (a) Income from the Republic of Azerbaijan and the capital holdings situated in the Republic of Azerbaijan, which according to the provisions of this Convention may be taxed in the Republic of Azerbaijan, shall be excluded from taxation in Germany, and shall not come within the purview of the provisions of sub-paragraph (b) of this paragraph.
• The preceding provisions shall apply to income from dividends, only when such dividends are paid by a company that is a resident of the Republic of Azerbaijan to a company (other than a partnership firm) that is a resident of the Federal Republic of Germany and where the German company holds directly not less than 10 percent of the share capital of the company resident in the Republic of Azerbaijan and whose capital is not deducted while calculating the profits of that company out of which the dividends are paid.
• For the purposes of the taxation of capital, participating shares and dividends shall be excluded from taxation in Germany, which if paid, would have been exempt from taxation according to the provisions of the preceding sub-paragraph.
• (b) Subject to the provisions of German tax laws and in order to counterbalance the foreign taxes while imposing German taxes on income, the income mentioned here under shall be counterbalanced against the Azerbaijani taxes paid on such income in accordance with the tax laws of the Republic of Azerbaijan and in accordance with the provisions of this Convention:
  • (i) dividends not covered in sub-paragraph (a) of this paragraph;
  • (ii) interest;
  • (iii) royalties;
  • (iv) income, which in accordance with paragraph 2 of Article 13 of this Convention, may be taxed in the Republic of Azerbaijan;
  • (v) income which in accordance with paragraph (3) of Article 15 may be taxed in the Republic of Azerbaijan;
  • (vi) remuneration paid to members of a Board of Directors or similar body;
  • (vii) income referred to under the provisions of Article 17 of this Convention.
• (c) With respect to income referred to under the provisions of Article 7 and Article 10 of this Convention and the capital holdings underlying it, in place of sub-paragraph (a) of this Article, the provisions of sub-paragraph (b) of this Article shall apply if a resident of the Federal Republic of Germany does not provide confirmation of the economic (financial) year in which the permanent establishment made profits, or a company, being a resident of the Republic of Azerbaijan, does not provide confirmation of the economic (financial) year against which it distributed profits, and receives its gross income exclusively or almost exclusively from the kinds of activities referred to under provisions 1 through 6 of sub-paragraph 1 of paragraph (8) of the Law of the Federal Republic of Germany on External Taxes. The same provision shall apply to immovable property intended to meet the requirements of the permanent establishment and income made from it (paragraph (4) of Article 6 of this Convention) and shall apply to profits from the alienation of the immovable property (paragraph (1) of Article 13 of this Convention) and movable property, constituting business property of the permanent establishment (paragraph (3) of Article 13 of this Convention).
• (d) However, the Federal Republic of Germany shall reserve the right to take into account income or capital holdings exempt from German taxes when imposing the tax rates applicable in Germany.
• (e) Notwithstanding the provisions of sub-paragraph (a) of this paragraph, double taxation shall be eliminated by means of counterbalancing tax in accordance with sub-paragraph (b) of this paragraph, and:
  • (i) if in a Contracting State, income or capital relate to different provisions of this Convention for different persons (except in cases provided in Article 9 of this Convention) and such conflict is impossible to settle by the procedure according to the provisions of paragraph (3) of Article 25 of this Convention and if in view  of such different attributions or considerations, the corresponding income or capital holdings would not have been subject to taxation or would have been subject to lesser taxation than in the absence of such conflict, or
  • (ii) if the Federal Republic of Germany after consultation notifies, through diplomatic channels, of other income to which it proposes to apply a method of counterbalancing tax in accordance with sub-paragraph (b), then double taxation with respect to the said income shall be eliminated by means of counterbalancing tax in accordance with sub-paragraph (b) from the first day of the calendar year following the year in which the notification was communicated.

(2) Taxes for a resident of the Republic of Azerbaijan shall be established as follows:

• Where a resident of the Republic of Azerbaijan derives income from sources in the Federal Republic of Germany or owns capital which may be taxed in accordance with the provisions of this Convention, then the Republic of Azerbaijan shall allow as a deduction from the tax of that resident, an amount equal to the tax on income or the tax on capital paid in the Federal Republic of Germany. In any case, such deduction shall not exceed the portion of tax on income or on capital calculated before granting the deduction pertaining to income or capital which may be taxed in the Republic of Azerbaijan according to its tax laws.