ARTICLE 22

Avoidance of Double Taxation

(1) In Spain, double taxation shall be avoided by compliance with the provisions of its domestic law or in accordance with the following provisions, with due regard to Spanish domestic law:

• (a) Where a Spanish resident obtains income or owns capital assets which, pursuant to the provisions of this Convention, may be liable to taxation in Germany, Spain shall allow:
  • (i) a deduction from the income tax of this resident for an amount equal to the income tax paid in Germany;
  • (ii) a deduction from the tax on capital of this resident for an amount equal to the tax paid in Germany upon those capital assets;
  • (iii) a deduction from corporate tax duly paid by the company which distributes the dividends, corresponding to the profits out of which the aforesaid dividends are paid, shall be granted in accordance with the domestic law of Spain.
• However, the aforesaid deduction shall not exceed that portion of the tax on income or capital, computed before the deduction was granted, corresponding to the income or the capital assets that may be taxable in Germany.
• (b) Where, pursuant to any provision of this Convention, the income obtained by a resident of Spain, or the capital owned by the same, are tax exempt in Spain, Spain may, nevertheless, take into account the exempt income or capital to compute the tax upon the remaining income or capital of this resident.

(2) In the case of a resident of the Federal Republic of Germany, the tax shall be determined as follows:

• (a) Unless a credit for taxes paid abroad is accepted, pursuant to sub-paragraph (b), every income item originating in the Kingdom of Spain and every capital item situated in the Kingdom of Spain that, pursuant to this Convention, is actually subject to taxation in Spain shall be excluded from the German taxable income.
• In the case of income items arising from dividends, the preceding provision shall only apply to those dividends paid to a company (excluding partnerships) resident of the Federal Republic of Germany by a company resident of the Kingdom of Spain, the capital whereof is directly owned, at least ten percent, by the German company, and has not been subject to deduction when determining the profits of the company that distributes such dividends.
• Pursuant to the preceding provisions, all partnership shares, whose dividends, if payable, would be tax exempt, shall be excluded from the capital tax base.
• (b) Pursuant the provisions in the German tax law related to imputed foreign income taxes, the following income or asset items situated in the Kingdom of Spain that, pursuant to this Convention, are actually subject to taxation in the Kingdom of Spain pursuant to its laws, shall be deductible from the German taxable income:
  • (i) the dividends not included in sub-paragraph (a) of this paragraph;
  • (ii) the items of income that may be liable to taxation in the Kingdom of Spain, pursuant to paragraphs (2) and (3) of Article 13;
  • (iii) the items of income that may be liable to taxation in the Kingdom of Spain, pursuant to paragraph (3) of Article 14;
  • (iv) the items of income that may be liable to taxation in the Kingdom of Spain, pursuant to the provisions of Article 15;
  • (v) the items of income that may be liable to taxation in the Kingdom of Spain, pursuant to the provisions of Article 16;
  • (vi) the items of income that may be liable to taxation in the Kingdom of Spain, pursuant to paragraphs (2) and (3) of Article 17;
  • (vii) the items of income derived from immovable property (including income originating from its alienation) or the capital comprised by such property, to the extent in which the immovable property is not actually connected to a permanent establishment in the Kingdom of Spain.
• (c) In the event that the resident of the Federal Republic of Germany cannot prove that that the permanent establishment or the company, resident of the Kingdom of Spain, has derived, respectively in the fiscal year in which it has obtained the profits or has distributed dividends, its exclusive or almost exclusive gross earnings from activities comprised within the meaning of paragraph (1) of Article 8 of the German Foreign Tax Law (Außensteuergesetz), then the provisions of sub-paragraph (b) shall be applicable to the income items specified in Articles 7 and 10 of this Convention, instead of the provisions of sub-paragraph (a), including the capital from which such income is derived. This principle likewise governs the immovable property utilized by a permanent establishment and the income derived from that immovable property pertaining to the permanent establishment (paragraph (3) of Article 6), as well as the benefits arising from the alienation of such immovable property (paragraph (1) of Article 13) and of the movable property included within the capital of the permanent establishment (paragraph (4) of Article 13).
• (d) Nevertheless, for determining the tax rate, the Federal Republic of Germany reserves the right to take into consideration the income and items of capital, which pursuant to the provisions of this Convention, are exempt from the German tax.
• (e) Notwithstanding what is set forth in sub-paragraph (a) of this paragraph, double taxation shall be avoided by the imputation method, as specified in sub-paragraph (b) of this paragraph:
  • (i) if the Contracting States consider specific income or capital covered by provisions other than those under this Convention, or attribute the same to different people (except pursuant to Article 9), and this conflict cannot be resolved by following the procedure specified in paragraph (3) of Article 24 and, as a consequence of this difference of criteria or of attribution, the income or capital at issue remains non-taxable or subject to lower taxation than that which corresponds in case a convention was made, or
  • (ii) where after due consultations with the competent authority of the Kingdom of Spain, the Federal Republic of Germany should notify the Kingdom of Spain, through diplomatic channels, regarding other income items to which the provisions of sub-paragraph (b) of this paragraph apply. In such cases, double taxation would be avoided in relation to the income notified, allowing the imputation thereof from the first day of the calendar year following that in which the notification was issued.