ARTICLE 22 — U.S. Income Tax Treaty

Capital

This Article specifies the circumstances in which a Contracting State may impose tax on capital owned by a resident of the other Contracting State. Since the United States does not impose taxes on capital, tile only capital taxes covered by the Convention are those imposed by Germany. Thus, although the Article is drafted in a reciprocal manner, its provisions are relevant only for the imposition of German tax. The explanation which follows will be from the perspective of Germany as the taxing State. The Article was included at Germany's request. It provides essentially the same rules as Article XIV A of the 1954 Convention.

The Article provides the general rule in paragraph 4 that capital owned by a resident of a Contracting State may be taxed only by that Contracting State. Thus, in general, Germany cannot tax a resident of the United States on capital owned by that resident. Exceptions to this general rule are provided in paragraphs 1, 2 and 3.

Paragraph 1 provides that capital represented by real property (as defined in Article 6 (Income from Immovable (Real) Property)) which is owned by a U.S. resident and located in Germany may be taxed by Germany. Under paragraph 2, capital which is represented by movable property which is part of the business property of a permanent establishment maintained by a U.S. resident in Germany or pertains to a fixed base maintained in Germany by a U.S. resident may be taxed by Germany.

Paragraph 3 deals with capital represented by ships, aircraft or containers operated in international traffic by an enterprise of the United States and with other movable property pertaining to the operation of such ships, aircraft or containers. Under the paragraph, such capital is taxable only in the Contracting State where the income of the U.S. enterprise owning such capital is taxable under the provisions of Article 8 (Shipping and Air Transport). Since a U.S. shipping, airline or container enterprise operating in international traffic is exempt from German income tax, such capital is also exempt from capital tax in Germany.