[Code of Federal Regulations]
[Title 26, Volume 18, Parts 500 to 599]
[Revised as of April 1, 2000]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR503.1]
[Page 14-17]
TITLE 26--INTERNAL REVENUE
CHAPTER 1--INTERNAL REVENUE SERVICE DEPARTMENT OF THE TREASURY
(Continued)
PART 503--GERMANY--Table of Contents
Subpart--Withholding of Tax
Sec. 503.1 Introductory.
(a) The income tax convention between the United States and the
Federal Republic of Germany, signed on July 22, 1954, and proclaimed by
the President of the United States on December 24, 1954, referred to in
this part as the convention, provides in part as follows, effective for
taxable years beginning on or after January 1, 1954:
Article I
(1) The taxes referred to in this Convention are:
(a) In the case of the United States of America: The Federal income
taxes, including surtaxes and excess profits taxes;
(b) In the case of the Federal Republic: The income tax, the
corporation tax and the Berlin emergency contribution (Notopfer).
(2) The present Convention shall also apply to any other income or
profits tax of a substantially similar character which may be imposed by
one of the contracting States
[[Page 15]]
after the date of signature of the present Convention.
Article II
(1) As used in this Convention:
(a) The term ``United States'' means the United States of America,
and when used in a geographical sense means the States, the Territories
of Alaska and Hawaii, and the District of Columbia;
(b) The term ``Federal Republic'' means the Federal Republic of
Germany and when used in a geographical sense means the territory over
which the Basic Law for the Federal Republic of Germany is in effect;
(c) The term ``permanent establishment'' means a branch, office,
factory, workshop, warehouse, mine, stone quarry or other place of
exploitation of the ground or soil, permanent display and sales office,
or a construction or assembly project or the like the duration of which
exceeds or will likely exceed twelve months, or other fixed place of
business; but does not include the casual and temporary use of mere
storage facilities, nor does it include an agent or employee unless the
agent or employee has full power for the negotiation and concluding of
contracts on behalf of the enterprise and also habitually exercises this
power, or has a stock of merchandise from which he regularly fills
orders on behalf of the enterprise. An enterprise of one of the
contracting States shall not be deemed to have a permanent establishment
in the other State merely because it carries on business dealings in
such other State through a commission agent, broker, custodian or other
independent agent, acting in the ordinary course of his business as
such. The fact that an enterprise of one of the contracting States
maintains in the other State a fixed place of business exclusively for
the purchase of goods and merchandise shall not of itself constitute
such fixed place of business a permanent establishment of the
enterprise. The fact that a corporation of one contracting State has a
subsidiary corporation which is a corporation of the other State or
which is engaged in trade or business in the other State shall not of
itself constitute that subsidiary corporation a permanent establishment
of its parent corporation. The maintenance within the territory of one
of the contracting States by an enterprise of the other contracting
State of a warehouse for convenience of delivery and not for purposes of
display shall not of itself constitute a permanent establishment within
that territory;
(d) The term ``enterprise of one of the contracting States'' means,
as the case may be, ``United States enterprise'' or ``German
enterprise'';
(e) The term ``United States enterprise'' means an industrial or
commercial enterprise or undertaking carried on in the United States by
a resident (including an individual in his individual capacity or as a
member of a partnership) or a fiduciary of the United States or by a
United States corporation or other entity; the term ``United States
corporation or other entity'' means a corporation or other entity
created or organized under the law of the United States or of any State
or Territory of the United States;
(f) The term ``German enterprise'' means an industrial or commercial
enterprise or undertaking carried on in the Federal Republic by a
natural person (including an individual in his individual capacity or as
a member of a partnership) resident in the Federal Republic or by a
German company; the term ``German company'' means juridical persons
together with entities treated as juridical persons for tax purposes
under the laws of the Federal Republic; and
(g) The term ``competent authorities'' means, in the case of the
United States, the Commissioner of Internal Revenue as authorized by the
Secretary of the Treasury; and in the case of the Federal Republic, the
Federal Ministry of Finance.
(2) In the application of the provisions of this Convention by one
of the contracting States any term not otherwise defined shall, unless
the context otherwise requires, have the meaning which the term has
under its own applicable laws. For the purposes of this Convention
``residence'' in the Federal Republic shall include the customary place
of abode therein.
* * * * *
Article VI
(1) The rate of tax imposed by the United States shall not exceed 15
percent in the case of dividends from sources within the United States
derived by a German company not having a permanent establishment in the
United States and owning at least 10 percent of the voting stock of the
corporation paying such dividend.
* * * * *
(3) If, subsequent to the date of signature of this Convention, the
percentage of stock ownership provided in section 131(f)(1) of the
Internal Revenue Code [of 1939] is reduced, the percentage of stock
ownership provided in paragraphs 1 and * * * of this Article shall
likewise be deemed to be simultaneously reduced.
Article VII
Interest on bonds, notes, debentures, securities or on any other
form of indebtedness (exclusive of interest on debts secured by
mortgages on farms, timberlands or real property used wholly or partly
for housing purposes) derived, bona fide as interest.
[[Page 16]]
(A) by a natural person resident in the Federal Republic, or by a
German company, not having a permanent establishment in the United
States, shall be exempt from tax by the United States; or
* * * * *
Article VIII
Royalties and other amounts derived as bona fide consideration for
the right to use copyrights, artistic and scientific works, patents,
designs, plans, secret processes and formulae, trade-marks and other
like property and rights (including rentals and like payments in respect
to motion picture films or for the use of industrial, commercial or
scientific equipment), derived
(A) by a natural person resident in the Federal Republic, or by a
German company, not having a permanent establishment in the United
States, shall be exempt from tax by the United States; or
* * * * *
Article IX
(1) Income from real property situated in one of the contracting
States (including gains derived from the sale or exchange of such
property and interest on debts secured by mortgages on farms,
timberlands, or real property used wholly or partly for housing
purposes) and royalties in respect of the operation of mines, stone
quarries or other natural resources derived by a resident or corporation
or other entity or company of the other contracting State, shall be
taxable only by the former State.
(2)(a) A natural person resident in the Federal Republic or a German
company deriving from sources within the United States any item of
income coming within the scope of paragraph (1) of this Article, may,
for any taxable year, elect to be subject to tax by the United States on
a net income basis as if such resident or company were engaged in trade
or business within the United States through a permanent establishment
therein.
* * * * *
Article XI
(1)(a) Wages, salaries and similar compensation and pensions paid by
the United States or by its states, territories or political
subdivisions, to an individual (other than a German citizen) shall be
exempt from tax by the Federal Republic.
(b) Wages, salaries and similar compensation and pensions paid by
the Federal Republic, Laender or municipalities, or by a public pension
fund, to an individual (other than a citizen of the United States and
other than an individual who has been admitted to the United States for
permanent residence therein) shall be exempt from tax by the United
States.
(c) For the purposes of this paragraph the term ``pensions'' shall
be deemed to include annuities paid to a retired civilian government
employee.
(2) Private pensions and private life annuities which are from
sources within one of the contracting States and are paid to individuals
residing in the other contracting State shall be exempt from taxation by
the former State.
(3) The term ``pensions'', as used in this Article, means periodic
payments made in consideration for services rendered or by way of
compensation for injuries received.
(4) The term ``life annuities'', as used in this Article, means a
stated sum payable periodically at stated times during life, or during a
specified number of years, under an obligation to make the payments in
return for adequate and full consideration in money or money's worth.
* * * * *
Article XIV
(1) Dividends and interest paid by a German company (other than a
United States corporation) shall be exempt from United States tax where
the recipient is a nonresident alien or a foreign corporation.
* * * * *
Article XVI
(1) The competent authorities of the contracting States shall
exchange such information (being information available under the
respective taxation laws of the contracting States) as is necessary for
carrying out the provisions of the present Convention or for the
prevention of fraud or the like in relation to the taxes which are the
subject of the present Convention. Any information so exchanged shall be
treated as secret and shall not be disclosed to any persons other than
those concerned with the assessment and collection of the taxes which
are the subject of the present Convention. No information shall be
exchanged which would disclose any trade, business, industrial or
professional secret or any trade process.
(2) Each of the contracting States may collect such taxes imposed by
the other contracting State as though such taxes were the taxes of the
former State as will ensure that any exemption or reduced rate of tax
granted under the present Convention by such other State shall not be
enjoyed by persons not entitled to such benefits.
(3) In no case shall the provisions of this Article be construed so
as to impose upon either of the contracting States the obligation
[[Page 17]]
to carry out administrative measures at variance with the regulations
and practice of either contracting State or which would be contrary to
its sovereignty, security or public policy or to supply particulars
which are not procurable under its own legislation or that of the State
making application.
Article XVII
* * * * *
(2) For the settlement of difficulties or doubts in the
interpretation or application of the present Convention or in respect of
its relation to Conventions of the contracting States with third States
the competent authorities of the contracting States shall reach a mutual
agreement as quickly as possible.
Article XVIII
(1) The provisions of this Convention shall not be construed to deny
or affect in any manner the right of diplomatic and consular officers to
other or additional exemptions now enjoyed or which may hereafter be
granted to such officers.
(2) The provisions of the present Convention shall not be construed
to restrict in any manner any exemption, deduction, credit or other
allowance now or hereafter accorded, by the laws of one of the
contracting States in the determination of the tax imposed by such
State, or by any other agreement between the contracting States.
* * * * *
Article XIX
(1) The competent authorities of the two contracting States may
prescribe regulations necessary to carry into effect the present
Convention within the respective States.
(2) The competent authorities of the two contracting States may
communicate with each other directly for the purpose of giving effect to
the provisions of this Convention.
Article XX
(1) The present Convention shall also apply from the date specified
in paragraph (1) of Article XXI to Land Berlin which for the purposes of
this Convention comprises those areas over which the Berlin Senate
exercises jurisdiction.
(2) It is a condition to the application of this Convention to
Berlin in accordance with the preceding paragraph that the Government of
the Federal Republic shall previously have furnished to the Government
of the United States of America a notification that all legal procedures
in Berlin necessary for the application of this Convention therein have
been complied with.
(3) After application of this Convention to Land Berlin in
accordance with paragraphs (1) and (2) of this Article, references in
this Convention to the Federal Republic shall also be considered
references to Land Berlin.
Article XXI
(1) The present Convention shall be ratified and the instruments of
ratification shall be exchanged at Bonn as soon as possible. It shall
have effect for the taxable years beginning on or after the first day of
January of the year in which such exchange takes place.
(2) The present Convention shall continue effective for a period of
five years beginning with the calendar year in which the exchange of the
instruments of ratification takes place and indefinitely after that
period, but may be terminated by either of the contracting States at the
end of the five-year period or at any time thereafter, provided that at
least six months' prior notice of termination has been given and, in
such event, the present Convention shall cease to be effective for the
taxable years beginning on or after the first day of January next
following the expiration of the six-month period.
* * * * *
(b) As used in this part, any term defined in the convention shall
have the meaning so assigned to it; any term not so defined shall,
unless the context otherwise requires, have the meaning which such term
has under the internal revenue laws.