ARTICLE 21

Other Income

This Article provides the rules for the taxation of items of income not dealt within the other articles of the Convention. An item of income is "dealt with" in an article when an item in the same category is a subject of the article, whether or not any treaty benefit is granted to that item of income. This Article deals both with classes of income which are not dealt with elsewhere, such as, for example, lottery winnings, and with income of the same class as income dealt within another article of the Convention, but from sources in third States, and, therefore, not a subject of the other Article, if that article deals only with items of that class of income from sources within a Contracting State. Paragraph 1 contains the general rule that such items of income derived by a resident of a Contracting State will be taxable only in the State of residence. This exclusive right of taxation applies irrespective of whether the residence State exercises its right to tax the income covered by the Article.

Paragraph 2 contains an exception to the general rule of paragraph 1 for income, other than income from real property, which is attributable to a permanent establishment or fixed base maintained in a Contracting State by a resident of the other Contracting State. The taxation of such income is governed by the provisions of Articles 7 (Business Profits) and 14 (Independent Personal Services). Thus, in general, third-country income which is attributable to a permanent establishment maintained in the United States by a resident of Germany would be taxable by the United States. There is an exception to this rule for income from real property, as defined in paragraph 2 of Article 6 (Income from Immovable (Real) Property). If a German resident derives income from real property located outside the United States which is attributable to the resident's permanent establishment or fixed base in the United States, only Germany and not the United States may tax that income. This special rule for foreign situs real property is consistent with the general rule, also reflected in Articles 6 (Income from Immovable (Real) Property) and 22 (Capital), that only the situs and residence States may tax real property and real property income; Even if such property is part of the property of a permanent establishment or fixed base in a Contracting State, that State may not tax if neither the situs of the property nor the residence of the owner is in that State.

Paragraph 19 of the Protocol relates to paragraph 2 of the Article. It provides a special rule for the case where a German corporation pays a dividend to a resident of Germany and the dividend is attributable to a permanent establishment or fixed base which the resident maintains

in the United States. This dividend is an item of income which is not dealt within Article 10 (Dividends), because Article 10, by its terms, applies to dividends paid by a resident of one Contracting State to a resident of the other. In the case dealt within Paragraph 19, Germany will treat the dividend as if it were paid to a resident of the United States, i.e., it may impose tax, but must limit its tax to the rates provided for in paragraphs 2 and 3 of Article 10 (Dividends). The United States may tax the dividend as income attributable to the permanent establishment or fixed base, but must give credit in accordance with tile provisions of Article 23 (Relief from Double Taxation).

This Article is subject to the saving clause of subparagraph (a) of Paragraph 1 of the Protocol. Thus, the United States may tax the income of a German resident not dealt with elsewhere in the Convention, if that German resident is a citizen of the United States.