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 Papua New Guinea and any item of capital situated within Papua New Guinea, which, according to this Agreement, may be taxed in Papua New Guinea. 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 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 Papua New Guinea 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 are 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 Papua New Guinea and the items of capital situated there the Papua New Guinea tax paid under the laws of Papua New Guinea and in accordance with this Agreement on:
  • (aa) dividends not dealt with in sub-paragraph (a);
  • (bb) interest;
  • (cc) royalties and fees for technical services;
  • (dd) directors' fees;
  • (ee) income of artistes and athletes;
  • (ff) real property and income therefrom.
• This shall not apply if the real property is effectively connected with a permanent establishment referred to in Article 7 and situated in Papua New Guinea or with a fixed base referred to in Article 14 and situated in Papua New Guinea, 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 credit referred to in letters (aa) and (bb) of sub-paragraph (b) the Papua New Guinea tax shall be deemed to be 17 per cent of the gross amount in case of dividends and 5 per cent of the gross amount in case of interest, if the Papua New Guinea tax is reduced to a lower rate according to domestic law, irrespective of the amount of tax actually paid.
• (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 Papua New Guinea which carry on active operations and in which the company which last made a distribution has a holding of 25 per cent or more.

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 Papua New Guinea.

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 Papua New Guinea as follows:

• Subject to the provisions of the law of Papua New Guinea from time to time in force which relate to the allowance of a credit against Papua New Guinea tax of tax paid in a country outside Papua New Guinea (which shall not affect the general principle hereof), tax paid under the law of the Federal Republic of Germany and in accordance with this Agreement, whether directly or by deduction, in respect of income derived by a person who is a resident of Papua New Guinea for the purposes of the law of Papua New Guinea relating to Papua New Guinea tax from sources in the Federal Republic of Germany (not including, in the case of a dividend, tax paid in respect of the profits out of which the dividend is paid) shall be allowed as a credit against Papua New Guinea tax payable in respect of that income.