ARTICLE 23

Method for Elimination of Double Taxation

(1) For a resident of the Federal Republic of Germany, double taxation shall be eliminated in the following manner:

• (a) Income from the Republic of Croatia as well as any property situated therein which, in accordance with the provisions of this Convention may be taxed in the Republic of Croatia, shall be exempt from German tax unless the tax credit is in accordance with paragraph (b). The exemption shall apply to dividends only if such dividends are paid to a company which is a resident of the Federal Republic of Germany (not a partnership) by a company which is a resident of the Republic of Croatia to the German company that directly holds at least 10 percent of the capital of the Croatian company and which has not been deducted when determining the profits of the distributing company.
• Insofar as asset taxes are concerned, in determining the assessment of German taxes, any holdings whose dividends, in case such dividends were paid, would have to be excluded in accordance with the preceding phrases from the tax basis, shall also be excluded.
• (b) For the purposes of German income tax, while observing the provisions of the German tax laws regarding credit for foreign taxes, the Croatian tax shall be recognized which has been paid in accordance with Croatian law and in compliance with this Convention and in accordance with this Convention for the items of income set forth below:
  • (i) Dividends other than those defined under sub-paragraph (a);
  • (ii) Interest;
  • (iii) Royalties;
  • (iv) Income that can be taxed in the Republic of Croatia under paragraph (2) of Article 13;
  • (v) Income that can be taxed in the Republic of Croatia under paragraph (3) of Article 15;
  • (vi) Supervisory Board and Advisory Board payments under Article 16;
  • (vii) Income to artistes and athletes.
• (c) In lieu of the provisions of the preceding paragraph (a), the provisions of paragraph (b) shall apply to income as defined by Articles 7 and 10 as well as the property on which such income is based, in case the individual residing in the Federal Republic of Germany fails to provide proof that the permanent establishment, during  the financial year in which the gain was realized or, in the case of a company residing in the Republic of Croatia, during the year in which the distribution was made, derives its gross earnings exclusively or almost exclusively from the following activities; production, handling, processing or sale of goods or merchandise, exploration or extraction of mineral wealth or technical consultation or technical service or banking or insurance business.
• The same shall apply to the immovable property pertaining to a permanent establishment (paragraph (4) of Article 6) as well as profits resulting from the alienation of such immovable property (paragraph (1) of Article 13) and movable property representing the operating assets of the permanent establishment (Article 13 paragraph (3)).
• (d) Notwithstanding the provisions of paragraph (a), double taxation shall be avoided by crediting taxes in accordance with paragraph (b).
  • (i) If, in the Contracting States income or capital is allocated to different provisions of the Convention or to different persons (not being persons to whom Article 9 applies) and such conflict cannot be resolved with a procedure in accordance with Article 25 paragraph (3), and if due to this varying allocation or attribution the income or capital in question would remain untaxed or be under taxed; or
  • (ii) If the Federal Republic of Germany, after appropriate consultation, notifies the Republic of Croatia through diplomatic channels of other income for which it intends to apply this paragraph. The double taxation of the notified income will be avoided by taking the tax into account from the first day of the calendar year following the year in which the notification was communicated.

(2) For a resident in the Republic of Croatia, double taxation shall be avoided in the following manner:

• (a) The income originating from the Federal Republic of Germany-with the exception of income under paragraph (b)-that under the above articles can be taxed in this State is exempted from tax in the Republic of Croatia. For dividends, the above regulations shall apply only when these dividends are paid by a company that is a resident in the Federal Republic of Germany to a company that is a resident in the Republic of Croatia and where at least 10 per cent of the capital of the German company is directly owned by the Croatian company and are not deducted when determining the profits of the distributing company;
• (b) For the following income, the tax collected from the Federal Republic of Germany shall be taken into account with the Croatian tax allotted to this according to the rules of the Croatian tax law:
  • (i) dividends that do not fall under paragraph (a);
  • (ii) interest;
  • (iii) royalties;
  • (iv) income that can be taxed in the Federal Republic of Germany under paragraph (2) of Article 13 insofar as it is not a participation or a share whose dividends fall within paragraph (a);
  • (v) income that can be taxed in the Federal Republic of Germany in accordance with paragraph (3) of Article 15;
  • (vi) Supervisory Board and Administrative Board payments according to Article 16;
  • (vii) income of artistes and athletes.

(3) Where in accordance with any provision of the Agreement income derived or capital owned by a resident of a Contracting State is exempt from tax in that State, such State may nevertheless, in calculating the amount of tax on the remaining income or capital of such resident, take into account the exempted income or capital.