ARTICLE 22

Avoidance of Double Taxation in the Territory of Residence

(1) Tax shall be determined in the case of a resident of the territory referred to in paragraph 3(a) of Article 2 as follows:

• (a) Unless foreign tax credit is to be allowed under sub-paragraph (b), there shall be exempted from the assessment basis of the tax under the laws of the territory referred to in paragraph 3(a) of Article 2 any item of income arising in the territory referred to in paragraph 3(b) of Article 2 and any item of capital situated within the territory referred to in paragraph 3(b) of Article 2 which, according to this Agreement, may be taxed in the territory referred to in paragraph 3(b) of Article 2. In the case of items of income from dividends the preceding provision shall apply only to such dividends as are paid to a company (not including partnerships) being a resident of the territory referred to in paragraph 3(a) of Article 2 by a company being a resident of the territory referred to in paragraph 3(b) of Article 2 at least 25 percent of the capital of which is owned directly by the first-mentioned company and which were not deducted when determining the profits of the company distributing these dividends. There shall be exempted from the assessment basis of the taxes on capital any shareholding the dividends of which if paid, would be exempted, according to the foregoing sentences.
• (b) Subject to the provisions of the law of the territory referred to in paragraph 3(a) of Article 2 regarding credit for foreign tax, there shall be allowed as a credit against tax payable on income in respect of the following items of income the tax paid under the laws of the territory referred to in paragraph 3(b) of Article 2 and in accordance with this Agreement:
  • (i) dividends not dealt with in sub-paragraph (a);
  • (ii) interest;
  • (iii) royalties;
  • (iv) items of income that may be taxed in the territory referred to in paragraph 3(b) of Article 2 according to paragraph 2 of Article 13;
  • (v) items of income that may be taxed in the territory referred to in paragraph 3(b) of Article 2 according to paragraph 3 of Article 14
  • (vi) directors' fees;
  • (vii) items of income in the meaning of Article 16;
  • (viii) items of income in the meaning of paragraph 1 of Article 17.
• (c) The provisions of sub-paragraph (b) shall apply instead of the provisions of sub-paragraph (a) to items of income as defined in Articles 7 and 10 and to the assets from which such income is derived if the resident of the territory referred to in paragraph 3(a) of Article 2 does not prove that the gross income of the permanent establishment in the business year in which the profit has been realised or of the company resident in the territory referred to in paragraph 3(b) of Article 2 in the business year for which the dividends were paid was derived exclusively or almost exclusively from activities within the meaning of numbers 1 to 6 of paragraph 1 of Section 8 of the Law on External Tax Relations (Aussensteuergesetz); the same shall apply to immovable property used by a permanent establishment and to income from this immovable property of the permanent establishment (paragraph 4 of Article 6) and to profits from the alienation of such immovable property (paragraph 1 of Article 13) and of the movable property forming part of the business property of the permanent establishment (paragraph 3 of Article 13).
• (d) The territory referred to in paragraph 3(a) of Article 2, however, retains the right to take into account in the determination of its rate of tax the items of income and capital, which are under the provisions of this Agreement exempted from the tax under the laws of that territory.
• (e) Notwithstanding the provisions of sub-paragraph (a) double taxation shall be avoided by allowing a tax credit as laid down in sub-paragraph (b):
  • (i) if in the territories items of income or capital are placed under different provisions of this Agreement or attributed to different persons (except pursuant to Article 9) and this conflict cannot be settled by a procedure in accordance with paragraph 3 of Article 24 and if as a result of this difference in placement or attribution the relevant income or capital would remain untaxed or be taxed lower than without this conflict; or
  • (ii) if after due consultation with the competent authority of the territory referred to in paragraph 3(b) of Article 2 the competent authority of the territory referred to in paragraph 3(a) of Article 2 informs the competent authority of the first-mentioned territory of other items of income to which it intends to apply the provisions of sub-paragraph (b). Double Taxation is then avoided for this income by allowing a tax credit from the first day of the calendar year, next following that in which the information was given.

(2) Tax shall be determined in the case of a resident of the territory referred to in paragraph 3(b) of Article 2 as follows:

• Where a resident of the territory referred to in paragraph 3(b) of Article 2 derives income from the other territory, the amount of tax on that income paid in that other territory (but excluding, in the case of a dividend, tax paid in respect of the profits out of which the dividend is paid) and in accordance with the provisions of this Agreement, shall be credited against the tax levied in the first-mentioned territory on that resident. The amount of credit, however, shall not exceed the amount of the tax in the first-mentioned territory on that income computed in accordance with its taxation laws and regulations.