Double tax treaties and relief for foreign taxes

In the absence of a tax treaty, a corporation residing in Germa-
ny is also subject to tax on its income from foreign sources.
However, the foreign income taxes paid on that income may be
credited against its German tax liability.

The foreign tax credit
must be determined separately for each foreign country and may
not exceed the German tax attributable to the income from the
respective country (per country limitation).

For this purpose, for-
eign source income is defned by the German Income Tax Law
and includes income generated in a foreign country from agri-
culture and forestry activities, other trading activities, the sale of
certain assets and shares, income from certain investments, and
income from the lease of real estate. Only foreign taxes equiva-
lent to German corporate/income taxes can be credited against
the German tax liability.

Taxpayers may elect either an offset (if
creditable) or a deduction (if not creditable) of the foreign taxes.
No carryforward is available for foreign taxes which cannot be
offset or deducted in the period for which they accrued.