Avoidance of Double Taxation
(1) The taxes to be paid by a resident of the Federal Republic of Germany shall be determined as follows:
- (a) In determining the German tax basis, subject to the provisions of letter (b), income originating in the Republic of Poland as well as any assets situated in the Republic of Poland which can be subjected to tax in accordance with this Convention in the Republic of Poland shall be excluded.
- Insofar as income from dividends is concerned, the above provisions shall solely apply in case these dividends are paid to a company residing in the Federal Republic of Germany (although not to partnership) by a company residing in the Republic of Poland ten percent of the capital of which is directly owned by the German company and which have not been deducted in determining profits of the company paying the dividends. The preceding sentence shall not apply to income from dividends that are paid by a company which resides in the Republic of Poland and is entitled to receive the tax benefit in accordance with the Law of October 20, 1994 concerning special business zones in the Republic of Poland.
- Insofar as asset taxes are concerned, in determining the corresponding tax basis, 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, any Polish tax shall be recognized which has been paid in accordance with Polish law and in accordance with this Convention for the items of income set forth below:
- (aa) dividends other than those defined under letter a), Sentence 2;
- (bb) income which can be subjected to tax in the Republic of Poland in accordance with paragraph (2) of Article 11, paragraph (2) of Article 12, paragraph (2) of Article 13, paragraph (3) of Article 15, paragraph (1) of Article 16 as well as Article 17.
- (c) In lieu of the provisions of above letter a), the provisions of the above letter 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 business year in which the gain was realized or, in the case of a company residing in the Republic of Poland, during the year in which the distribution was made, derives its gross earnings exclusively or almost exclusively from activities coming under Article 8, paragraph (1), Numbers 1 through 6 of the German Foreign Tax Law or from holdings under Article 8, paragraph (2) of said Act; the same applies to 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 (paragraph (3) of Article 13).
- (d) The Federal Republic of Germany reserves the right to include any income and property that is exempted from German taxes in accordance with this Convention in determining the tax rate for other income and property.
(2) The taxes to be paid by residents of the Republic of Poland shall be determined as follows:
- (a) where a resident of the Republic of Poland derives income or owns property which, in accordance with the provisions of this Convention, may be taxed in the Federal Republic of Germany, the Republic of Poland shall, subject to the provisions of letter b), exempt such income or property from taxation. In determining taxes for the remainder of the income or property of this person, however, the Republic of Poland may use the tax rate which would apply in case the respective income or property had not been exempted from taxation.
- (b) In the event that a person being a resident of the Republic of Poland receives income which can be taxed in accordance with Articles 10, 11 and 12 in the Federal Republic of Germany, the Republic of Poland shall recognize, for the tax to be levied on the income of such person, the amount which corresponds to the income tax paid in the Federal Republic of Germany. The amount to be recognized, however, must not exceed the part of the tax determined prior to such recognition which corresponds to the income received from the Federal Republic of Germany.
(3) Instead of letter (a) of paragraph (1) or letter (a) of paragraph (2), letter (b) of paragraph (1) or letter (b) of paragraph (2) shall apply,
- (a) in case, in the Contracting States, income or property are assigned to different provisions of this Convention or attributed to different persons (except pursuant to Article 9) and these differences in opinion can not be settled by means of a mutual agreement procedure in accordance with paragraph (3) of Article 26 and in the event that, because of such difference of opinion, the respective income or assets would not be taxed at all or too low, or
- (b) in case a Contracting State notifies, after proper consultation and subject to the limitations of its domestic laws, the other Contracting State via diplomatic channels of other types of income to which it intends to apply letter b) of paragraph (1) or letter b) of paragraph (2). The notification shall only come into force and effect on the first day of the calendar year following the year during which the notification was transmitted and all legal requirements in accordance with the domestic laws of the notifying State have been fulfilled for the notification to come into force and effect.