Introduction to the Law of Double Taxation Conventions
2. Aufl. 2013
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S. 12810 Methods for elimination of double taxation
10.1 The importance of the method article
10.1.1 Relation to the allocation rules
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The methods for elimination of double taxation are set out as rules in Art. 23A and/or B of the DTCs patterned after the OECD Model. Under the allocation rules, the residence state’s taxing rights are rarely excluded and the source state often keeps its taxing rights as well. The method articles address the residence state. When the residence state’s taxing rights are not excluded and a certain item of income may be taxed in the source state, the provision obliges the residence state to either exempt the income or credit the tax paid in the source state.
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A German resident company carries on its activity in part through a PE situated in Spain. Under Art. 7 of the Germany-Spain DTC, profits that are attributable to that PE may be taxed by Spain. Germany’s taxing rights with respect to those profits are not excluded by Art. 7 Germany-Spain DTC. Those profits may not be taxed, however, in Germany, according to Art. 23 of the Germany-Spain DTC, since the exemption method applies with respect to that item of income.
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The application of the method articles is n...