Article 23 - Relief from Double taxation - Germany

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 the Republic of India and any item of capital situated within the Republic of India, which, according to this Agreement, may be taxed in the Republic of India. 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 the Republic of India 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 shareholdings 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 tax payable in respect of the following items of income arising in the Republic of India and the items of capital situated there, the Indian tax paid under the laws of the Republic of India and in accordance with this Agreement on : (i) dividends not dealt with in sub-paragraph (a) ; (ii) interest ; (iii) royalties and fees for technical services ; (iv) income in the meaning of paragraph 4 of Article 13 ; (v) directors fees ; (vi) income of artistes and sports persons. (c) For the purpose of credit referred to in letter (ii) of sub-paragraph (b), the Indian tax shall be deemed to be 10 per cent of the gross amount of the interest, if the Indian tax is reduced to a lower rate or totally waived according to domestic law, irrespective of the amount of tax actually paid. (d) The provisions of sub-paragraph (c) shall apply for the first 12 fiscal years for which this Agreement is effective. (e) 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 the Article 10 and the items of capital underlying such income the exemption shall apply even if the dividends are derived from holdings in other companies being residents of the Republic of India 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 the Republic of India. If this is not proved, only the credit procedure as per sub-paragraph (b) shall apply. 2. Tax shall be determined in the case of a resident of the Republic of India as follows : Where a resident of the Republic of India derives income or owns capital which, in accordance with the provisions of this Agreement, may be taxed in the Federal Republic of Germany, the Republic of India shall allow as a deduction from the tax on such income of that resident an amount equal to the income-tax paid in the Federal Republic of Germany, whether directly or by deduction, and as a deduction from the tax on such capital of that resident an amount equal to the capital tax paid in the Federal Republic of Germany. Such deduction in either case shall not, however, exceed that part of the income-tax or capital tax (as computed before the deduction is given) which is attributable, as the case may be, to the income or the capital which may be taxed in the Federal Republic of Germany. 3. The laws in force in either of the Contracting States shall continue to govern the taxation of income and capital in the respective Contracting States except where express provision to the contrary is made in this Agreement.