ARTICLE 23
Relief from Double Taxation
(1) Tax shall be determined in the case of a resident of the Federal Republic of Germany as follows:
- (a) Unless foreign tax credit is to be allowed under sub-paragraph (b), there shall be exempted from German tax any item of income arising in Mongolia and any item of capital situated within Mongolia, which, according to this Agreement, may be taxed in Mongolia. The Federal Republic of Germany, however, retains the right to take into account in the determination of its rate of tax the items of income and capital so exempted.
- In the case of dividends exemption shall apply only to such dividends 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 Mongolia at least 10 per cent of the capital of which is owned directly by the German company.
- There shall be exempted from taxes on capital any shareholding the dividends of which the exempted or, if paid, would be exempted, according to the immediately foregoing sentence.
- (b) Subject to the provisions of German tax law regarding credit for foreign tax, there shall be allowed as a credit against German income, corporation and capital tax payable in respect of the following items of income arising in Mongolia and the items of capital situated there the Mongolian tax paid under the laws of Mongolia and in accordance with this Agreement on:
- (aa) dividends not dealt with in sub-paragraph (a);
- (bb) interest;
- (cc) royalties;
- (dd) directors' fees;
- (ee) income of artistes and athletes;
- (ff) immovable property and income therefrom.
- This shall not apply if the immovable property is effectively connected with a permanent establishment referred to in Article 7 and situated in Mongolia or with a fixed base referred to in Article 14 and situated in Mongolia, unless the provisions of sub-paragraph (d) preclude the application of the provisions of sub-paragraph (a) to the profits of the permanent establishment.
- (c) For the purpose of the credit referred to in sub-paragraph (b) of this paragraph the Mongolian tax shall be deemed to be 10 per cent of the gross amount in the case of income referred to in Article 10 paragraph (1)(b), Article 11 paragraph (1), Article 12 paragraph (1).
- (d) Notwithstanding the provisions of sub-paragraph (a) items of income dealt with in Articles 7 and 10 and gains derived from the alienation of the business property of a permanent establishment as well as the items of capital underlying such income shall be exempted from German tax only if the resident of the Federal Republic of Germany can prove that the receipts of the permanent establishment or company are derived exclusively or almost exclusively from active operations.
In the case of items of income dealt with in Article 10 and the items of capital underlying such income the exemption shall apply even when the dividends are derived from holdings in other companies being residents of Mongolia, which carry on active operations and in which the company which last made a distribution has a holding of more than 25 per cent.
Active operations are the following: producing or selling goods or merchandise, giving technical advice or rendering engineering services, or doing banking or insurance business within Mongolia.
If this is not proved, only the credit procedure as per sub-paragraph (b) shall apply, except for the fictitious credit as per sub-paragraph (c).
(2) Tax shall be determined in the case of a resident of Mongolia as follows:
- Where a resident of Mongolia derives income from the Federal Republic of Germany the amount of tax that is payable in the Federal Republic of Germany in accordance with the provisions of this Agreement may be deducted from the Mongolian tax imposed on that resident. The amount of the deduction, however, shall not exceed the amount of the Mongolian tax on that income computed in accordance with the taxation laws and regulations of Mongolia.