(1) Tax shall be determined in the case of a resident of the Federal Republic of Germany as follows:

• (a) Items of income arising in Sweden and capital assets situated in Sweden which may be taxed in Sweden under this Agreement and do not fall within sub-paragraph (b) shall be excluded from the German tax base. The Federal Republic of Germany shall, however, retain the right to take such excluded items of income and capital assets into consideration in determining the rate of tax for other items of income and capital assets. The preceding provisions shall also apply to distributions of holdings in joint stock companies paid to a company resident in the Federal Republic of Germany by a company resident in Sweden at least 10 per cent of whose capital is held directly by the German company. However, distributions paid by an investment fund and distributions of sums which are deducted in the determination of profits of the distributing company for purposes of Swedish tax shall not be excluded from the tax base.
• For the purposes of taxes on capital, holdings in respect of which distributions, if paid, would be subject to exclusion from the tax base under the preceding clauses shall also be excluded from the tax base.
• (b) Subject to the provisions of German tax law regarding credit for foreign tax, there shall be allowed as a credit against German income and corporation tax payable in respect of the following items of income arising in Sweden the Swedish tax paid under the law of Sweden and in accordance with this Convention on:
  • (aa) Income arising from dividends not dealt with in sub-paragraph (a),
  • (bb) Income that is taxable in Sweden under Article 13, paragraph (1), second sentence, and Article 13, paragraph (5),
  • (cc) Remuneration that is taxable in Sweden under Articles 15, paragraph (4), (16) and (17), and
  • (dd) income for which a tax deduction is to be granted in place of a tax exemption, in accordance with Article 43, paragraph (1).

For the purposes of this paragraph, profit or income of a resident of the Federal Republic of Germany shall be regarded as arising from sources in Sweden if they are taxed in Sweden in accordance with this Agreement.

(2) In the case of a resident of Sweden, double taxation shall be avoided as follows:

• (a) If a resident of Sweden derives income which is taxable under this Agreement in the Federal Republic of Germany, Sweden shall, taking into consideration the provisions of Swedish tax law (taking into consideration changes applicable in each case which do not affect the general principle of those provisions) credit against the tax imposed on such income the amount corresponding to the tax paid therefor in the Federal Republic of Germany.
• (b) Where a resident of Sweden who was formerly a resident of the Federal Republic of Germany derives profit from the alienation of property which has been taxed in accordance with Article 13, paragraph (5) in the Federal Republic of Germany, Sweden shall credit against the tax imposed by it on such profits the amount corresponding to the tax paid in the Federal Republic of Germany on such profits, including the tax which was imposed at the time of the change of domicile on the capital gains that arose at that time. The amount to be credited shall not, however, exceed that part of the Swedish tax determined before the credit which is apportioned to the profit from the alienation.
• This provision shall apply only to alienations effected within ten years after the change of domicile.
• (c) Where a resident of Sweden possesses property which is taxable under this Agreement in the Federal Republic of Germany, Sweden shall credit against the property tax imposed on the property of that resident an amount corresponding to the tax paid in the Federal Republic of Germany on the property. The amount to be credited shall, however, not exceed that part of the Swedish property tax imposed before the credit which is apportioned to the property that is taxable in the Federal Republic of Germany.
• (d) If a resident of Sweden derives income that is taxable in the Federal Republic of Germany under Article 18 or Article 19, Sweden may take such income into account in determining the rate of tax for other income.

(3) Notwithstanding the provisions of Article 2, distributions on share holdings in joint stock companies paid by a company resident in the Federal Republic of Germany to a company resident in Sweden shall be exempt from Swedish tax if such distributions would, under Swedish law, have been exempt from Swedish tax if both companies were domiciled in Sweden. Such exemptions shall, however, not be granted if the profits from which the distributions derive consist exclusively or almost exclusively of

• (a) Profits which have been subject to the normal corporate tax of the Federal Republic of Germany or taxation comparable to the Swedish corporate tax in the Federal Republic of Germany or in another State, or
• (b) Distributions which the company received in the year of the distribution or in preceding years from company shares which it holds in a company resident in a third State and which would have been exempt if the company shares on which the distributions were paid had been held directly by the company resident in Sweden.

Such exemption shall not be granted if the distributions are paid by an investment fund, or for distributions of amounts which for purposes of German tax have been deducted in the determination of profits of the distributing company.

(4) If a company resident in the Federal Republic of Germany uses income from Sweden for a distribution, paragraph (1) shall not exclude the creation of a "distribution liability" in accordance with the provisions of German tax law.