EATLP Meeting Budapest: National Report for Germany

EATLP Meeting Budapest: National Report for Germany on the EU Savings Taxation Directive by Ingmar Dörr

Introduction 2 I. Brief overview: Taxation of interest income in Germany 2 1. Taxation of resident individuals 2 2. Taxation of non-resident individuals 4 II. Brief overview: Treatment of interest income in German Double Taxation Treaties 5 1. Material issues 5 2. Procedural issues 6 III. Implementation of the EU Savings Taxation Directive in Germany 6 1. Timing and Completeness of implementation 6 2. Extent of implementation 7 3. Concept of implementation 7 4. Concept of beneficial ownership 7 5. Concept of paying agent 8 6. Concept of interest 8 7. Transfer of information by the paying agent to the competent national tax authority 9 8. Transfer of information between Member States tax authorities 10 9. Exchange of information between tax resident paying agents 10 10. Proof of residency of the taxpayer 10 11. Tax credit 12 IV. Unresolved legal questions regarding the Directive and its implementation 12 1. Legal status of a taxpayer resident in a third country 12 2. Treatment of information received for a taxpayer resident in another Member State 13 3. Proof of residence of the beneficial owner 13 4. Competent authority for money laundering issues 15 5. Sufficiency of information request list 15 6. Cross-border transfer of information directly to the tax authority 16 7. Cross-border transfer of information directly to the taxpayer 16 8. Non-execution of the Directive's obligations by a Member State 17 9. Determination of the amount of interest from hybrid financial instruments 17 10. Definition of interest and the aim of the Directive 18 Annexe: The German Double Taxation Treaties with respect to the Article on interest income 19

 Tax Lawyer in the international law firm Lovells in Munich and Ph.D. student with Prof. Wolfgang Schön, Taxation Department of the Max Planck Institute for Intellectual Property, Competition and Tax Law in Munich, Germany. He can be reached at: [email protected].

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Introduction On 3 June 2003, the Council of the European Union adopted the Directive on taxation of savings income in the form of interest payments ("EU Savings Taxation Directive" or "Directive")1. This measure formed one of the elements of the "tax package" aimed at tackling harmful tax competition in the Community. On 19 July 2004, the Council adopted a Decision establishing the application date of 1 July 20052. The following contribution gives an overview of the taxation of savings income under the German national tax law (part I) as well as under German Double Taxation Treaties (part II). The implementation of the EU Savings Taxation Directive in Germany (part III) and unresolved questions regarding the Directive and its implementation (part VI) are also discussed.

I. Brief overview: Taxation of interest income in Germany 1. Taxation of resident individuals a) General remarks Interest both from foreign and domestic sources paid to individuals resident in Ger- many is subject to German income tax (Einkommensteuer) as business income or income from private investments. Interest especially reflects income derived from . a silent partnership or from profit participating loans3; . accessory (Hypotheken) and non-accessory mortgages (Grundschulden)4; or . other debt claims of every kind5. Furthermore, certain proceeds from the separate sale or redemption of interest coupons or notes are considered income from capital investment. In general, expenses incurred to produce interest income are tax deductible. The individual income tax rates of the progressive system vary within a range from 15% to 42% depending on the amount of income. In addition, a solidarity surcharge (Solidaritätszuschlag) on the amount of the personal income tax at a rate of 5.5% will be levied. Germany generally imposes a non-final withholding tax on interest income from domestic sources (Kapitalertragsteuer). Withholding tax is generally levied as an advanced payment for income tax purposes by way of a tax withheld at the source by certain debtor of the interest payments, e.g., if the debt claim is held in custody with a German credit institution or a German financial services institution (including a Ger- man permanent establishment of a foreign credit institution), as paying agent for the beneficial owner. The tax rates vary depending of the type of debt claim, so for instance, the paying agent in the example above will have to deduct the so called advanced interest tax (Zinsabschlagsteuer) at a rate of 30% (plus 5.5% solidarity surcharge thereon totalling 31.65% tax rate). The advanced interest tax is withheld on the gross "income from other debt claims of every kind" (for example interest from savings and fixed-term deposits with domestic banks) and on interest paid on certain

1 Council Directive 2003/48/EC of 3 June 2003 on taxation of savings income in the form of interest payments, Official Journal L 157, 26 June 2003, p. 38 - 48. 2 Council Decision 2004/587/EC of 19 July 2004, Official Journal L 257, 4 August 2004, p. 7. 3 Sec. 20 (1) no. 4 Income Tax Act ("ITA", Einkommensteuergesetz). 4 Sec. 20 (1) no. 5 ITA. 5 Sec. 20 (1) no. 7 ITA.

MUNLIB01/MUNID/133234.04 Lovells - 3 - bonds to residents. Where the notes are physically presented at the office of a German paying agent (an anonymous "over-the-counter transaction", Tafelgeschäft), advanced interest tax is withheld by the paying agent at a rate of 35% (plus solidarity surcharge thereon totalling 36.93%). A withholding tax rate of 25% (plus solidarity surcharge thereon totalling 26.38%) applies to income derived as a silent partner or from profit- participating loans. Withholding tax and solidarity surcharge thereon are credited as prepayments against the overall liability for German income tax and solidarity surcharge of the German resident. If the amount withheld exceeds the overall tax liability, the taxpayer will be entitled to a refund, based on an assessment to tax. b) Business income Interest income derived by individuals resident in Germany is attributed to the respective kind of business income of the taxpayer, for example trade income or income from independent work, if the debt claims that are the source of interest are assets be- longing to the business of the taxpayer. The interest income is subject to withholding tax as mentioned above. However, such interest income is exempted from the advanced interest tax if the tax withheld would permanently exceed the personal income tax of the respective business6. For tax assessment purposes the taxpayer must declare the interest income as part of the business income in their tax return. The taxable income from trade and business is calculated from the profits shown in the statutory accounts of the business subject to certain adjustments for tax purposes to arrive at the taxable income. The advance interest tax already withheld from the source is included in the calculation of the overall tax liability. Thus, the withholding tax is not a final tax but can be credited against the overall income tax liability. In addition to the personal income tax, interest (as part of the trade income) is also subject to trade tax (Gewerbesteuer) if the underlying debt claim is held as asset of a German trade business. The amount of trade tax is dependent upon the municipality in which the taxpayer is carrying on its business. Trade tax, however, can be deducted to a certain extent from the income tax of the taxpayer and, generally, does not result in an additional tax burden for the taxpayer. c) Income from private investments Interest income derived by individuals from savings and non-commercial investments qualifies as income from private investments. A tax allowance of Euro 1.370 per year (double for jointly assessed spouses) is granted for the overall income from private investments. In general, expenses incurred to derive investment income are tax deductible. However, a lump-sum deduction of Euro 51 per year (double for jointly assessed spouses) applies if no higher actual expenses are shown. For interest income from domestic investments the withholding tax procedure is the same as discussed above. However, no withholding tax will be levied if the taxpayer files for an exemption certificate (Freistellungsauftrag) with the paying agent to the

6 Sec. 44a (5) ITA.

MUNLIB01/MUNID/133234.04 Lovells - 4 - extent the interest income derived will not exceed the maximum exemption amount7 shown on the certificate. Similarly, no withholding tax will be deducted if the taxpayer can provide the paying agent with a certificate of non-assessment (Nichtveranla- gungsbescheinigung) issued by the relevant local tax office under certain circum- stances8. As previously mentioned, the whole taxable income of the taxpayer including the income from private investments is taxed at the individual tax rate. There is no trade tax levied on income from private investments.

2. Taxation of non-resident individuals a) Business income Interest derived by non-resident individuals as business income is generally not subject to German taxation, unless the debt claims under which the interest accrues form part of the business assets of a permanent establishment, including a permanent rep- resentative or a fixed base maintained or deemed to be maintained in Germany. If the non-resident is subject to German taxation with the interest income forming part of its business income, a tax regime similar to that explained for residents with business income applies. In general there is no withholding tax on outgoing interest from Germany. However, where the interest is subject to German taxation as mentioned above, the withholding tax procedure may apply if the debt claims are held in the custody of a German paying agent and the tax withheld will be credited against the income tax exposure of the domestic permanent establishment. b) Income from private investments Income derived by a non-resident individual from private investments pursuant to Sec. 20 (1) no. 5 and 7 ITA (for example bank interest) is generally not subject to taxation of income from German sources, unless . the interest-bearing private investment is secured by German real estate; . the interest-bearing private investment consists of certain profit participating rights; or . the interest is paid in an anonymous over-the-counter transaction9. Income derived from a silent partnership or from profit participating loans is only subject to German taxation if the debtor is tax resident in Germany or if the income accrues in an over-the-counter transaction10. This treatment also applies in the same way to the respective proceeds from a separate sale or redemption of interest coupons or notes. Usually, where the income is subject to German tax, the non-resident taxpayer has to file a German tax return. A final withholding tax on such taxable interest income is only levied on . income derived from a silent partnership or from certain profit participating loans;

7 Sec. 44a (1) no. 1, (2) no. 1 ITA: the maximum exemption amounts Euro 1.370 plus Euro 51 per year (double for jointly assessed spouses). 8 Sec. 44a (1) no. 2, (2) no. 2 ITA. 9 Sec. 49 (1) no. 5 (c) (aa)-(cc) ITA. 10 Sec. 49 (1) no. 5 (a) ITA.

. income derived from other debt claims of every kind (Sec. 20 (1) no. 7 ITA) if the interest stems from bonds and claims recorded in a public register of debts or in a foreign register or for which a collective certificate or a partial deben- ture is issued or if the debtor of the interest is a German credit institution or a German financial services institution (including a German permanent establishment of a foreign credit institution); or . proceeds from the separate sale or redemption of interest coupons or notes11. The final withholding tax is levied at a rate of 30% (25% in the case of income from a silent partnership or from profit participating loans; 35% in the case of an over-the- counter transaction) plus a solidarity surcharge of 5.5% thereon. However, the Ger- man withholding tax on outgoing interest is subject to the provisions of an applicable German Double Taxation Treaty which may limit, or even exclude the German right of taxation (see the following part II and the respective annexe).

II. Brief overview: Treatment of interest income in German Double Taxation Treaties 1. Material issues Germany has concluded treaties to avoid double taxation concerning income taxes (Double Taxation Treaties, "DTT") with 90 countries. Generally, most of the German DTT are based on the OECD Model Convention with respect to taxes on income and on capital ("OECD Model Treaty"). With regard to interest income, Article 11 (1) OECD Model Treaty 2005 allocates the right of taxation to both the state of residence of the taxpayer and the source country. However, Article 11 (2) OECD Model Treaty suggests that the tax levied in the source country shall not exceed 10% of the gross amount of interest income. The German DTT are mainly in line with Article 11 (1) OECD Model Treaty12. How- ever, with respect to the allocation of the right of taxation, the following German treaties provide for a sole allocation of the right of taxation to the state of residence of the taxpayer excluding any right to tax interest income in the source country: . Austria, Bosnia-Herzegovina, Bulgaria, Croatia, Czech Republic, Denmark, Finland, France, Great Britain, Hungary, Iceland, Ireland, Kuwait, Luxem- bourg, Macedonia, Malta, Namibia, the Netherlands, Norway, Russia, Serbia and Montenegro, Slovakia, Slovenia, Sweden, Switzerland, Tadzhikistan, USA, UAE and Yugoslavia. In comparison to Article 11 (2) OECD Model Treaty, the maximum tax rates in the German DTT for taxation in the source country are the following: . 15%: Argentina, Belgium, Bolivia, Brazil13, Cote d'Ivoire, Ecuador, Egypt, Iran, Israel, Kenya, Malaysia, Mexico, Philippines, Portugal, Trinidad & To- bago, Turkey, Uruguay

11 Sec. 43 (1) no. 3, 7 and 8 ITA. 12 See Klaus Vogel et al., Klaus Vogel on Double Taxation Conventions, 3rd ed. 1997. For a brief overview of the article on interest income in German DTT see the table attached in the Annexe to this report. 13 The DTT with Brazil was cancelled on 7 April 2005, with effect from 31 December 2005, see Ger- man Federal Official Tax Journal 2005, I-799.

. 10%: Australia, Azerbaijan, Bangladesh, Canada, China, Cyprus, Estonia, Greece, India, Indonesia, Italy, Japan, Kazakhstan, Korea, Latvia, Lithuania, Mongolia, Morocco, New Zealand, Singapore, South Africa, Spain, Sri Lanka, Tunisia, Vietnam, Zambia, Zimbabwe . 5%: Armenia, Belarus, Georgia, Kyrgyzstan, Moldova, Poland, Soviet Union (for some succession states), Turkmenistan, Ukraine, Uzbekistan, Venezuela . Others: Jamaica (12.5%), Liberia (20%), Mauritius (non-restricted), Pakistan (20%), Romania (3%), Thailand (25%). Thirty eight German DTT14 contain a beneficiary clause, i.e. a clause that restricts the scope of application of the whole article on interest income or the limitation of the source country tax rate to cases where the person receiving the interest qualifies as the beneficial owner of the income.

2. Procedural issues Even where the national withholding tax rate is limited by a German DTT, the resident paying agent is obliged to withhold the full tax for the account of the non-resident creditor who is subject to the limited tax liability (the person liable to pay the tax) and to remit it to the competent tax office. An exemption from German withholding tax is only possible if and to the extent that a DTT or another German or European tax provision stipulates that the income subject to withholding tax may not be taxed or may be taxed only at a lower rate and if the creditor applies for such a favourable treatment. According to Sec. 50d ITA, it is possible for the German debtor to abstain from the withholding obligation if the creditor can provide an exemption certificate for the interest received. The creditor can apply for such a certificate from the Federal Fin- ance Central Bureau (Bundeszentralamt für Steuern)15. Moreover, if payments are made and taxes withheld at the higher national rate prior to the receipt of such a certificate, the creditor can claim a tax refund from this authority.

III. Implementation of the EU Savings Taxation Directive in Germany 1. Timing and Completeness of implementation According to Article 17 (1) EU Savings Taxation Directive, Member States should ad- opt and publish the laws, regulations and administrative provisions necessary to comply with this Directive before 1 January 2004. With a slight delay, Germany has fully implemented the EU Savings Taxation Directive with the so called Interest Informa- tion Regulation (Zinsinformationsverordnung) dated 26 January 200416. This Interest Information Regulation was introduced by the German Federal Ministry of Finance which was authorised through the enabling act of Sec. 45e ITA17.

14 For the respective DTT see the comments in the table attached in the Annexe to this report. 15 Please note that the former Federal Finance Office (Bundesamt für Finanzen) was renamed the Fed- eral Finance Central Bureau (Bundeszentralamt für Steuern) due to the Law on Reorganisation of the Federal Finance Authorities (Gesetz zur Neuorganisation der Bundesfinanzverwaltung) dated 22 September 2005, German Federal Official Journal 2005, I-2809 with effect from 1 January 2006. 16 German Federal Official Tax Journal 2004, I-297 as amended by the regulation of 22 June 2005, Ger- man Federal Official Tax Journal 2005, I-803. 17 Sec. 45e ITA was introduced by the Tax Amendment Act (Steueränderungsgesetz) 2003 dated 15 December 2003, German Federal Official Journal 2003, I-2645 effective from 20 December 2003 as

According to an official announcement the Interest Information Regulation came into effect in accordance with the EU Savings Taxation Directive on 1 July 200518.

2. Extent of implementation The Interest Information Regulation did not exactly replicate the Directive, although the paragraphs and the wording of the German law mainly correspond to that of the Directive. However, the German government exercised the options granted under the Directive in a restricted manner. Furthermore, to assist with the interpretation of the new national law, the German Federal Ministry of Finance issued guidance in the form of an introductory decree (Einführungsschreiben zur Zinsinformationsverod- nung) dated 6 January 200519.

3. Concept of implementation As mentioned under no. 2 above, the German Federal Ministry of Finance followed the concepts of the Directive for the implementation of the Directive into German tax law. Distinctions, if any, are discussed in the following paragraphs.

4. Concept of beneficial ownership Prior to the implementation of the concept of beneficial ownership in Sec. 2 of the In- terest Information Regulation20, there was no similar concept in the national tax system for the taxation of savings from private investments. However, generally this did not result in an alteration to the person liable to tax: according to German principles, interest will be attributed to and taxed in the hand of the person triggering the legal basis of taxation due to Sec. 20 ITA, that is to say the person granting loans or capital in its own name and on its own behalf. The concept of beneficial ownership is touched on in the anti-abuse provision of Sec. 50d (3) ITA, where a foreign company has no claim for a whole or partial reduction from German withholding tax (under a DTT or under an EU Directive) to the extent that the company is owned by persons who would not be entitled to the tax relief if they received the income directly and if there are no economic or other remarkable reasons for the interposition of the foreign company which does not conduct a business activity of its own. Moreover, Sec. 50g (3) ITA, implementing the EU Interest and Royalty Directive21 2003/49/EC, grants the exemption from German withholding amended by the Directive Implementation Act (Richtlinien-Umsetzungsgesetz-EURLUmsG) dated 9 December 2004, German Federal Official Journal 2004, I-3310. 18 See the announcement on the entry into force of the Interest Information Regulation dated 22 June 2005, German Federal Official Tax Journal 2005, I-806. 19 German Federal Official Tax Journal 2005, I-29 as amended by the decree dated 13 June 2005, Ger- man Federal Official Tax Journal 2005, I-716 and decree dated 27 January 2006 (which replaced a decree of 12 October 2005). 20 See also no. 6 of the decree dated 6 January 2005 (footnote Error: Reference source not found above) which clarifies that it is irrelevant whether the individual person being the beneficial owner receives the income as business income or as income from private investments. Thus, interest payments to a one- man business are also within the scope of the provisions. 21 Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States, Official Journal L 157, 26 June 2003, p. 49-54.

MUNLIB01/MUNID/133234.04 Lovells - 8 - tax for interests and royalties within the scope of that directive only to creditors that are the beneficial owner of the payments received. In contrast to Article 11 (2) OECD Model Treaty, Germany does not follow a clear concept of beneficial ownership in its DTT. In some DTT the withholding tax reduction is based on the requirement that the recipient of the interest income must qualify as the beneficial owner of the payments; in others it does not22.

5. Concept of paying agent The paying agent concept is not unknown in the German national tax law, even if the German concept is mainly based on the concept of creditor and debtor of the interest payments. However, with regard to the German withholding tax procedure, the term 'paying agent' is used to define the person liable to withhold the tax on behalf of the creditor of the interest income: see Sec. 44 (1) ITA. Consequently, Sec. 43 (2) ITA grants an exemption from the withholding tax obligation in cases where the creditor and the paying agent are identical persons at the time the interest payment accrues. Paying agent is basically defined in Sec. 44 (1) ITA as the domestic financial institution or financial service institution. Pursuant to Sec. 44 (2) ITA the paying agent generally is liable for the taxes they must withhold and transfer to the tax authority unless they are able to prove that they have not violated their obligations wilfully or been grossly negligent. Please note that the German implementation in Sec. 4 of the Interest Information Reg- ulation is mainly in line with Article 4 of the Directive but defines the "economic operator" (which is one feature of a paying agent) as each individual or legal person paying interest in exercising its occupation or business. According to the interpretation in the decree of the Federal Ministry of Finance23, contractual relationships between rel- atives or other private contractual relationships are excluded from the scope of the law. Generally, the economic operator will be a bank or financial institution. However, it can also be an association of individuals, a trustee for a community of heirs or a lawyer with an escrow account for a group of individuals. However, if a company is granted a loan by its individual shareholder, the interest payment is not regarded as made in exercising the company's business but simple as made on the occasion of the company's business not falling within the scope of application of the Directive.

6. Concept of interest The concept of interest in Sec. 6 Interest Information Regulation mainly coincides with the concept of interest under the Directive. The material term of interest used in the German implementation matches the term of income from private investments pursuant to Sec. 20 (1) no. 4 (income from a silent partnership or a profit participation loan), no. 5 (income from accessory (Hypotheken) and non-accessory mortgages (Grundschulden), no. 7 (income from other debt claims of every kind) and Sec. 20 (2) excluding sent. 1 no. 2 a) ITA (income accrued or capitalised at the sale or assignment of debt claims)24.

22 See the table of DTT attached in the Annexe to this report. 23 See no. 22 of the decree dated 6 January 2005 (see footnote Error: Reference source not found above).

With respect to the option granted in Article 6 (1) of the Directive, Germany decided to implement a look-through-approach which includes only income realised upon the sale, refund or redemption of shares or units in the undertakings or entities mentioned in Article 6 (1) (d) to the extent that such income corresponds to gains directly or in- directly derived from interest payments within the meaning of Article 6 (1) (a) and (b). Germany did not exercise the option in Article 6 (5) of the Directive regarding the annualisation of interest payments. However, the option provided in Article 6 (6) of the Directive has been exercised by the German Ministry of Finance and, thus, the de- minimis-rule for interest payments of undertakings or entities with investment in debt claims of not more than 15% of their assets also applies in Germany25. Thus, where for instance a fund makes a distribution or redemption to an individual investor loc- ated in another Member State, the Directive will apply where the level of debt claims exceeds 15% of the overall assets of the fund.

7. Transfer of information by the paying agent to the competent national tax authority The intra-national or domestic transfer of information from the paying agent to the Federal Finance Central Bureau26, as competent German tax authority, is governed by Sec. 8 of the Interest Information Regulation in line with Article 8 (1) of the Directive. However, with respect to Article 8 (2), Germany took the opportunity to opt for the restriction of the minimum amount of information concerning interest payments to be reported by the paying agent to the total amount of interest or income and to the total amount of the proceeds from sale, redemption or refund. As mentioned above, Ger- many did not opt for the possible request of annualised interest offered under Article 6 (5) of the Directive. According to the interpretation of the German Ministry of Finance, the necessary reporting data has to be determined at the time of accrual (sum paid cash, on account or offset) of the income27. The information has to be reported (without request from the tax authority) by the paying agent by 31 May of the year following the year the income accrued, for example by 31 May 2006 for the accrual period 2005 (1 July 2005 to 31 December 2005). In contrast to the combined report that the bank has to provide to its customers annu- ally28, the report under the Interest Information Regulation has to be made account-re- lated. However, it is also allowed to consolidate the total income of each account or deposit. The paying agent has to transfer the necessary data electronically to the Fed-

24 See no. 40 of the decree dated 6 January 2005 (see footnote Error: Reference source not found above). Please note that with respect to interest paid or accrued to an account relating to debt claims of every kind pursuant to Article 6 (1) (a) of the Directive, no. 41 of the decree originally excluded interest from over-the-counter transactions, but this exemption was abolished with the decree dated 13 June 2005 (see footnote Error: Reference source not found above). 25 Sec. 6 (5) of the Interest Information Regulation (see footnote Error: Reference source not found above) and no. 51 of the decree dated 6 January 2005 (see footnote Error: Reference source not found above). 26 See footnote Error: Reference source not found above. 27 See no. 61, 65 of the decree dated 6 January 2005 (see footnote Error: Reference source not found above). The question of accrual of interest is to be determined under German tax law. 28 Sec. 24c ITA.

MUNLIB01/MUNID/133234.04 Lovells - 10 - eral Finance Central Bureau29. The Federal Ministry of Finance has issued an official form regarding the required reporting information and recommends the cost-free data transfer programme "MACH5" for the transfer of mass data (see details under www.bzst.de) as well as ElsterOnline (www.elster.de) for individual case data trans- fers30.

8. Transfer of information between Member States tax authorities Information received from the German paying agents is retained31 and transferred by the Federal Finance Central Bureau to the respective tax authority of the state of residence of the beneficiary. The cross-border data transfer has to be done automatically without any request once a year within six months following the end of the respective year. In line with Article 9 (3) of the Directive it is provided in Sec. 9 (2) of the In- terest Information Regulation that the German law32, which implemented the EU Ex- change of Information Directive33, is applicable. Furthermore, from an inbound perspective, the Federal Finance Central Bureau is responsible for the receipt and storage of data transferred from other Member States in order to comply with the obligations under the EU Savings Taxation Directive. The information is then transferred to the German state tax authorities (Landesfinanzver- waltungen) whose local tax offices are responsible for the taxation of the beneficial owner.

9. Exchange of information between tax resident paying agents There are no special rules regarding the exchange of information from one paying agent to another paying agent within the German tax jurisdiction.

10. Proof of residency of the taxpayer To achieve the aim of the EU Savings Taxation Directive, to inform the state of residence of the beneficial owner about accrued interest, the identification of the residence of the beneficial owner is necessary. For the determination of the residence of the taxpayer, the German implementation in Sec. 3 Interest Information Regulation generally corresponds with Article 3 of the Directive ("know-your-customer" principle). The ex-

29 Sec. 45 sent. 2 in conjunction with Sec. 45d (1) sent. 2-4 and (2) ITA; Sec. 150 (6) General Tax Code (Abgabenordnung) in conjunction with the Tax Data Transfer Regulation (Steuerdatenübermittlungs- verordnung) dated 28 January 2003, German Federal Official Journal 2003, I-139 and the respective decree dated 5 February 2003; see also no. 67 of the decree dated 6 January 2005 (see footnote Error: Reference source not found above). 30 See no. 68 and Annexe II of the decree dated 6 January 2005 as amended by the decree dated 27 January 2006 (see footnote Error: Reference source not found above). Please note that the electronically data transfer systems will be implemented soon, for example ElsterOnline will provide the respective form as from 1 April 2006. 31 The stored data will be deleted three years after the end of the year in which the data was transferred, see Sec. 9 (3) of the Interest Information Regulation (see footnote Error: Reference source not found above). 32 EC Mutual Assistance Act (EG-Amtshilfe-Gesetz) dated 19 December 1985, German Federal Official Journal 1985, I-2436, 2441. 33 Council Directive 77/799/EEC of 19 December 1977 concerning mutual assistance by the competent authorities of the Member States in the field of direct taxation, Official Journal L 336, 27 December 1977, p.15-20.

MUNLIB01/MUNID/133234.04 Lovells - 11 - press presumption that residence shall be considered to be situated in the state where the beneficial owner has his permanent address was not used in the Interest Informa- tion Regulation but it was used in the decree thereto34. Generally, in Germany residence will also be determined by the address shown in the passport or the identity card or in another document provided by the beneficial owner35. However, individuals subject to the extended unlimited income taxation in Germany36 are deemed to be Ger- man resident for purpose of the Directive. The same is true for German employees in international institutions, for example the European Union, if they are treated as being subject to unlimited income taxation according to interstate agreements37. For contractual relations entered into before 1 January 2004, the paying agent must establish the residence of the beneficial owner by using the information at its disposal. Pursuant to Sec. 1 (5) Money Laundering Act (Geldwäschegesetz), credit and financial institutions also have to request the address of the client as proved by a passport or identity card38. There is no obligation to deliver a special proof of residence for tax purposes. For contractual relations entered into, or transactions carried out in the absence of contractual relations, on or after 1 January 2004, the paying agent must establish the residence of the beneficial owner on the basis of the address mentioned in the passport or the identity card. If necessary, this can alternatively be made on the basis of any documentary proof of identity presented by the beneficial owner, for example the electoral register, a credit report, the electricity, gas or water bill, the tax return, a bank statement or entry in the telephone book39. In the German implementing law, the provision in Article 3 (3) (b) of the Directive was extended to individuals presenting a passport or an identity card issued by a Member State but claiming to be resident in a third country or another Member State40. If the paying agent can verify the claimed residence in another Member State due to the account information or client correspondence, the claimed residence is to be used for the information transfer. Only where some doubts remain shall the Mem- ber State, which issued the passport or the identity card, be considered to be state of residence. In contrast, if the individual claims to be resident in a third country, he has to prove this by providing a tax residence certificate of the third country otherwise the Member State which issued the passport or the identity card, shall be considered to be state of residence.

34 See no. 16 and 17 of the decree dated 6 January 2005 (see footnote Error: Reference source not found above). 35 A written statement by the beneficial owner about his permanent address is sufficient; see decree dated 27 January 2006 (see footnote Error: Reference source not found above). 36 Sec. 1 (2) ITA, for example German nationals without German residence providing German government services abroad and receiving remuneration from German institutions. 37 See the general remarks in the decree dated 27 January 2006 (see footnote Error: Reference source not found above). 38 More generally, Sec. 154 (2) General Tax Code requires persons keeping an account to request the address from the account holder. 39 See no. 17 of the decree dated 6 January 2005 (see footnote Error: Reference source not found above). 40 See no. 18 and 19 of the decree dated 6 January 2005 (see footnote Error: Reference source not found above).

The personal delivery of the required documents to establish residence is not necessary. If the paying agent identified the beneficial owner in the past, there is no need for a further identification when opening a new account or deposit for the same beneficial owner with the same paying agent41.

11. Tax credit Article 14 of the Directive obliges the state of residence to eliminate double taxation that might result from the imposition of withholding tax in the Member States (and the countries applying equivalent measures) levying withholding tax. This can be done by way of tax credit (Article 14 (2), (3)) or tax refund (Article 14 (4)). As a matter of course, Germany did not waive its right of taxation of the interest in- come42 and, thus, Sec. 14 Interest Information Regulation grants a tax credit pursuant to Sec. 36 and 34c ITA. The paying agent in a Member State (or the country applying equivalent measures) levying withholding tax will provide the beneficial owner with a receipt reflecting the actual amount of taxes withheld43 which has to be delivered to the competent German tax office of the beneficial owner. The tax withheld abroad will then be credited (to the exclusion of tax credit rules in DTT) against the German income tax, provided that in the case of dual residence Germany qualifies as the state of residence for DTT purposes. If the tax withheld can not or can not fully be credited against the German income tax, the foreign tax will be refunded. With regard to "any other type" of withholding tax as mentioned in Article 14 (3) of the Directive, the German implementation in Sec. 14 (3) is in line with it. A tax credit in Germany is only possible if and to the extent there is a provision for a credit of such a special withholding tax in a German DTT or pursuant to Sec. 34c ITA. How- ever, if such a special type of withholding tax does not equal German income tax, the special withholding tax can not be credited against the German income tax burden, but can be deducted from the calculation of the taxable income subject to German income tax44. The German tax office has to advise the beneficial owner that he might apply for an exemption from withholding tax in the source country. Therefore, he has to provide the foreign paying agent with a certification of its competent German tax office for such an exemption from the withholding tax procedure. If the beneficial owner applies for that certificate, the German tax office has to issue it within two months from the date of application45.

IV. Unresolved legal questions regarding the Directive and its implementation

41 See no. 14, 20 of the decree dated 6 January 2005 (see footnote Error: Reference source not found above). 42 Article 11 (4) EU Savings Taxation Directive (see footnote Error: Reference source not found above). 43 A sample of such a form which is subject to discussions with the other States pursuant to no. 69 and Annexe III/5 of the decree dated 6 January 2005 (see footnote Error: Reference source not found above). 44 Sec. 34c (3) ITA. 45 Sec. 13 of the Interest Information Regulation (see footnote Error: Reference source not found above) and no. 71 and Annexe III/4 of the decree dated 6 January 2005 (see footnote Error: Reference source not found above). Annexe III/4 contains a sample of such a withholding tax exemption certificate which is still subject to discussions with the other States.

1. Legal status of a taxpayer resident in a third country The ultimate aim of the Directive is to enable savings income in the form of interest payments made in one Member State to beneficial owners who are individuals resident for tax purposes in another Member State to be made subject to effective taxation in accordance with the laws of the latter Member State. Against this background, the residence of the taxpayer is a decisive criterion for the application of the Directive. Thus, the burden of proof for the claim of an individual, identified as a Member State resident by presenting a passport or an identity card issued by a Member State, that its residence is in a third country is with the taxpayer. The residence in the third country has to be proved by the presentation of a tax residence certificate issued by the competent tax authority of that third country. Otherwise the Member State which has issued the passport or the identity card is considered to be state of residence. If the taxpayer has successfully proved his third country residence, he does not fall within the scope of the Directive, unless this third country agreed equivalent measures according to Article 17 (2) of the Directive. Thus, he has to be treated for tax purposes as an individual that is tax resident outside the European Community. This provides an opportunity for taxpayers to evade the aim of the Directive by establishing a tax residence in a third country that does not apply equivalent measures. On the other hand, a Member State being the source country could be tempted not to completely verify the presented third country tax residence certificates in order to promote itself as an advantageous investment location. However, this would not only jeopardise the aim of the Directive but also be regarded as a harmful tax competition46.

2. Treatment of information received for a taxpayer resident in another Member State If a taxpayer turns out to be a resident of another Member State than the Member State indicated by the paying agent, the information should be automatically transferred to both the authentic and the indicated Member State. In my opinion this is the best way to achieve the aim of the Directive to ensure effective taxation of the interest income in the state of residence of the beneficial owner, since in many cases it re- mains unclear for the source country when the beneficial owner changed their residence. As there is generally no audit obligation for the source country whether the residence which was identified once in the past has been changed, the source country has to rely on the information on a change of residence (as proved by passport or identity card) presented by the beneficial owner. If the change of residence takes place during the calendar year, the exchange of information to the Member State of residence has to be done at the time of accrual of the interest. For instance, if, where there are monthly interest payments, the change of residence of the beneficial owner from Member State A to Member State B takes place as from the fourth quarter of the year, the report to Member State A includes the interest payments made during the first three quarters of the year and to Member State B the interest payments of the last quarter of the year47.

46 Cf. the conclusions of the ECOFIN Council meeting on 1 December 1997 concerning taxation policy, Official Journal C 2, 6 January 1998, p. C2/1-C2/6. 47 See the general advice re the description of the dataset to be transferred by a paying agent to the Fed- eral Finance Central Bureau in the decree dated 27 January 2006 (see footnote Error: Reference source

3. Proof of residence of the beneficial owner Generally, the Directive imposes the burden of proof of the residence of the beneficial owner entirely on the paying agent. Only when a beneficial owner, identified as a Member State resident but claiming to be resident in a third party, is the burden of proof imposed on the beneficial owner48. In contrast, under treaty law the taxpayer has to prove his residence in order to reduce source country taxation. Thus, the question arises whether the Directive should impose duties and sanctions to obtain co-operation of the non-resident taxpayer. To answer this question one has to examine the purposes of both Directive and Treaty law: . Treaty law does not only aim for the elimination of double taxation but also for the restriction of taxation rights of a contracting state, for example the limitation of withholding tax rates as stipulated in Article 11 (2) of the OECD Model Treaty49. Residence is necessary to identify the application of the DTT and the extent of the right of taxation of a contracting state. However, in the case of a withholding tax reduction, the non-resident taxpayer has to apply for it to the competent tax authority in the source country. It is up to him whether or not to benefit from the withholding tax limitation granted under the applicable DTT. Thus, the burden of proof is on the taxpayer since he is the person entitled to the tax benefit. . On the other hand, the EU Savings Taxation Directive generally does not impact on the withholding tax procedure in the Member State of source except for Austria, Belgium and Luxemburg due to Article 11 et seq. of the Directive. The sole aim of the Directive is to ensure the effective taxation of interest income in the Member State of residence of the beneficial owner. Thus, the aim of the Dir- ective is not to grant a benefit to the taxpayer (especially not to tax-evaders) but rather to the tax authority in the Member State of residence. Surely, one could impose a co-operation obligation upon the non-resident taxpayer under the Directive but this duty would have to be audited and sanctioned by the Member State of source which would be difficult to administer. One has to bear in mind that the withholding tax procedure for a tax levied on the income of the non-resident is as- signed to the resident debtor of the payments (for example the paying agent for interest payments) in order to have a resident person liable for these taxes. Thus, from an administration perspective it seems to be consistent to put the burden of proof of residence on the paying agent as an obligation associated with the obligation to withhold tax from the interest payments. Moreover, since in most cases the paying agent is obliged to identify the beneficial owner of an account or deposit under national law anyway50, the Directive provides for no further administrative burden for the paying agent51. Furthermore, the presumption that the beneficial not found above). 48 See the explanations under part IV. 2. above. 49 See the explanations under part II above. 50 See in Germany the "know-your-customer" obligations under Sec. 1 (5) Money Laundering Act and Sec. 154 (2) General Tax Code. 51 Otherwise, there would be two burdens of proof for the determination of residence of the beneficial owner and the conflict would arise whether the resident paying agent or the non-resident taxpayer is liable and, thus, to be sanctioned for misleading information.

owner is resident in the Member State of issuance of the presented passport or identity card avoids time-consuming investigations by the paying agent.

4. Competent authority for money laundering issues The rules with respect to the identification of the beneficial owner are based on the EU Money Laundering Directive52. However, this does not result in a confusion regarding the authority to which the information has to be sent, since under the German Money Laundering Act the paying agent has only to identify the beneficial owner, to record and to retain the information. The paying agent must only report to the competent prosecution authority as well as to the Federal Criminal Bureau if he has a suspi- cion of money laundering by the beneficial owner53. If indicators of money laundering are established a criminal investigation might take place in the country of source, because of the concealing of illegally attained money resulting in interest payments by the paying agent, and in the county of residence, because of tax evasion. The criminal procedure in both states is necessary because different objects of legal protection (protection of tax revenue and combat of organised crimes) in different states are violated by the same criminal activity. In this respect please note that on 16 October 2001 a Protocol concerning mutual co-operation on banking information was adopted, aiming at fighting against money laundering and financial crime54. According to this Protocol a Member State is obliged to assist another Member State which requests information on bank accounts and transactions of natural or legal persons for an investigation of fiscal offences.

5. Sufficiency of information request list The information required under Article 8 of the Directive to be reported by the paying agent to the competent national tax authority and from there further to the competent tax authority in the state of residence is adequate to allow the tax authorities in the state of residence to make a tax assessment. One has to bear in mind that in an ideal world the state of residence should have been provided by its taxpayer with all the necessary information regarding the taxable income which, under a world-wide income taxation regime, includes the (interest) income derived abroad. Consequently, the information received from the source country has to be considered only as an auxiliary tool for the authority competent for the taxation of the beneficial owner to audit the information provided by the taxpayer in his income tax return. If the tax office finds a deviation of the interest income stated by the taxpayer in its tax return and reported by the source country, the tax office in the state of residence is in a position either to rely for the tax assessment on the information received from the source country or to make an inquiry against the taxpayer or to assess the tax by an estimation (based on the in-

52 Council Directive 91/308/EEC of 10 June 1991 on prevention of the use of the financial system for the purpose of money laundering, Official Journal L 166, 28 June 1991, p. 77. 53 Sec. 11 Money Laundering Act (Geldwäschegesetz). 54 Council Act of 16 October 2001 establishing, in accordance with Article 34 of the Treaty on European Union, the Protocol to the Convention on Mutual Assistance in Criminal Matters between the Member States of the European Union, Official Journal C 326, 21 November 2001, p. 1-8 and Explan- atory report to this Protocol (Text approved by the Council on 14 October 2002), Official Journal C 257, 24 October 2002, p. 1-9; implemented in Germany with Law of 22 July 2005, German Federal Of- ficial Journal 2005, II-661.

MUNLIB01/MUNID/133234.04 Lovells - 16 - formation received from the source country). Therefore, the data exchanged under the Directive seems to be sufficient to finally ensure the effective taxation of interest income received from abroad in the state of residence.

6. Cross-border transfer of information directly to the tax authority The question whether a direct transfer of information from the paying agent to the competent tax authority in the state of residence would be more effective seems to be a theoretical one. It presumes that the current reporting system stipulated under the Directive is less effective, which has not yet been proved. In addition, there are good reasons against such a "direct" transfer of information: . From an outbound perspective (outgoing interest payments), the compliance costs for the administration of such a system would be enormous. The paying agent would have to ensure an automatic delivery of the necessary information to the responsible authorities in 24 other Member States and 15 third countries or associated states applying equivalent measures. Moreover, there would be no official mediator in the state of source and the tax authority in the state of residence would have to get in contact directly with a multiplicity of foreign paying agents in case of any discrepancies. The state of residence could only enforce the fulfilment of the report obligations of a paying agent by having the source country sued to enforce the respective obligation of his resident. . From an inbound perspective (incoming interest payments), the need of a central tax authority recording and distributing the received information from the foreign paying agent is inevitable. Otherwise the paying agent would have to directly report to each relevant foreign tax office competent for the tax assessment of the beneficial owner in each of the 39 possible states of residence. Therefore, if a centralised authority is necessary for receiving the information for incoming interest from abroad, the same centralised tax authority can be used to collect and transfer the information with regard to outgoing interest. Moreover, the competent centralised tax authorities in the involved states can assure the transmission of the data and settle discrepancies. Even from a legal point of view, Article 249 (ex 189) of the EC Treaty provides that European directives place 'upon Member States' an obligation to achieve a certain result within a given period of time, leaving them the freedom to choose the form and methods by which to achieve this result. The assignment of such duties originally be- longing to the government's obligations in foreign affairs to financial institutions would be too excessive.

7. Cross-border transfer of information directly to the taxpayer The Directive does not prohibit the transfer of information directly from the paying agent to the taxpayer concerned. In fact, a prohibition would even jeopardise the aim of the Directive, since in practice the paying agent is often obliged under the contractual arrangements or under national tax law55 to provide the beneficial owner (account

55 In Germany, sec. 24c ITA obliges banks and financial institutions to annually issue a combined report to bank customers which includes the necessary details on interest income subject to income taxation. Even if this obligation only exists for bank customers subject to unlimited taxation in Germany, banks will also issue reports to non-resident customers.

MUNLIB01/MUNID/133234.04 Lovells - 17 - holder etc.) with information on account/deposit balance, interest or other income accrued, tax deductions etc. necessary for the beneficial owner to file the tax return in the state of residence. The German tax law allows for a direct transfer of information from the paying agent to the taxpayer necessary for taxation purposes56.

8. Non-execution of the Directive's obligations by a Member State If a Member State implements the Directive but does not in fact deliver or does not adequately deliver useful information, the aim of the Directive could be easily circum- vented. To make matters worse, there is no impact in national sovereignty through the Directive and, thus, no audit through the European Commission or another supra-national authority57. The only thing the European Commission should do under the Dir- ective is to report every three years on the operation of the Directive and to propose to the Council any amendments that prove necessary to ensure effective taxation of savings income58. Against this background, Member States could be tempted to deliver only low levels of information (or of withholding taxes collected) to become more in- teresting for foreign financial investors. Each Member State depends on the information received from the other Member State to ensure effective taxation of interest income. Thus, doubts of Member State A about the completeness of the information received from Member State B could cause Member State A to deliver less information (as a sanction) in return which could become a vicious circle and finally jeopardise the effectiveness of the Directive. This creates the risk that competition for information regarding foreign investments could be replaced through easy going monitoring. An effective enforcement of the flow of useful information is only possible if the source country has set up an appropriate monitoring and sanction mechanism to enforce the necessary reporting of paying agents resident within its territory. The Ger- man implementation law does not provide for such a mechanism; however, compliance with the reporting obligation imposed by law can be demanded from the German paying agent through an administrative act of the tax authorities which is subject to enforcement measures, e.g. penalty fines59.

9. Determination of the amount of interest from hybrid financial instruments Under Article 6 of the Directive, interest is defined as payments relating to debt claims "of every kind", for example those carrying a right to participate in the debtor's profit. Consequently, many hybrid financial instruments fall within the scope of the Directive. However, with respect to the qualification of hybrid financial instruments as debt claims, there is neither an accurate definition in the Directive nor a uniform understanding in the Member States. For the solution of this problem under an autonomous uniform interpretation of the Directive one should revert to the solution offered under IFRS. If a hybrid financial instrument qualifies as a financial liability

56 Pursuant to Sec. 45a (2), (3) ITA the resident or non-resident creditor of interest payments (taxpayer) can request from the resident debtor/paying agent a certificate stating the amount of interest and tax withheld. 57 See also Schwarz, IStR (International Tax Law Journal) 2006, p. 83, 85. 58 See Para 25 of the Preamble of the Directive (see footnote Error: Reference source not found above). 59 Sec. 249 et seq. General Tax Code. Please note that the German tax authority is enabled by Sec. 93b General Tax Code to automatically retrieve data from credit institutions with (limited) information on bank accounts of taxpayers.

MUNLIB01/MUNID/133234.04 Lovells - 18 - under IAS 3260, the payments for the instrument should be considered interest payments within the scope of Article 6 of the Directive. Pursuant to IAS 32.15 et seq., the existence of an option for the holder to put the financial instrument back to the issuer (usually a payback or termination clause) for cash or another financial asset means that the financial instrument meets the definition of a financial liability.

10. Definition of interest and the aim of the Directive The material scope of the Directive depends on what is deemed to be savings income in the form of interest. Thus, the definition of interest income marks the obligations for the paying agent, triggers the cross-border exchange of information and even de- termines the possibilities for individual investors to avoid the application of the Dir- ective. Regarding the effectiveness of interest income taxation in the Member States, the definition of interest plays an important role, but is not the main factor. As mentioned above, the effectiveness of the taxation in the state of residence is subject to several factors, for example the performance of the exchange of information, enforcement mechanism and the due utilisation of the received information. Moreover, the interest definition does not harmonise the tax base in Europe even if the Directive is likely to increase the degree of transparency in the taxation of interest income. How- ever, the question can be raised as to whether there is also an obligation imposed on Member States to tax the respective interest. In that regard, it must be borne in mind that, according to settled case-law of the European Court of Justice, although direct taxation falls within their competence, Member States must none the less exercise that competence consistently with Community law61. Even if the non-taxation of interest is creating distortions in the capital movements between Member States which is incom- patible with the internal market the situation seems hardly to differ from that of a non- harmonised taxation of interest income within Europe. Thus, the obligation to tax foreign interest derived by individuals in their Member States of residence can only be enforced by a directive pursuant to Article 94 of the EC Treaty. Since this obligation is carved out by the EU Savings Taxation Directive, a duty for Member States to tax interest income (falling within the scope of the Directive) does not currently exist under Community law. Anyway, this obligation might be imposed by the respective national tax or constitutional law, especially due to the principles of tax equality and ability-to- pay62, if and to the extent comparable interest income derived from domestic sources is subject to tax.

60 See Commission Regulation (EC) No 2237/2004 of 29 December 2004 amending Regulation (EC) No 1725/2003 adopting certain international accounting standards in accordance with Regulation (EC) No 1606/2002 of the European Parliament and of the Council, as regards IAS No 32 and IFRIC 1, Offi- cial Journal L 393, 31 December 2004, p. 1 - 41. 61 See, in particular, joined cases C-397/98 and C-410/98, Metallgesellschaft and Others, ECR 2001, I- 1727, annot. 37 and the case-law cited. 62 For example, Article 3 (1) of the German Constitution (Grundgesetz) demands for tax equality.

Annexe: The German Double Taxation Treaties with respect to the Article on interest income

State Article Source Comments country tax rate Argentina 1978/ 11 15 Protocol No. 4: See footnote 1 to the an- 1996 nexe Art. 11 (2) b): 10% tax rate, if the interests is paid in connection with sale of commercial or scientific equipment on credit or in connection with bank credit or finance of public work Armenia 1981 5 See Soviet Union (the old agreement persists) Australia 1972 11 10 Protocol No. 7: Beneficiary-Clause Austria 2000 11 Art. 11 (2): See footnote 1 Art. 11 (1): Beneficiary-Clause Azerbaijan 2005 11 10 Protocol No. 6: See footnote 1 Bangladesh 1990 11 10 Protocol No. 2: See footnote 1 Art. 11 (2): Limitation of tax rate only for beneficial owners Belarus 1981 5 See Soviet Union (the old agreement persists) Belgium 1967/ 11 15 2002

Bolivia 1992 11 15 Protocol No. 4: See footnote 1 Art. 11 (1): Limitation of tax rate only for beneficial owners Bosnia- Herzegovina 1987 0 See Yugoslavia (the old agreement persists) Brazil 1975 15 Art. 11 (2) a): 10% tax rate, if the beneficiary is a bank and the credit is at least for Note: The DTT Brazil was a term of minimal 7 years and granted in cancelled on 7 April 2005, connection with buying industrial equip- with effect from 31 December ment or planning/ buying/installation of 2005. industrial and scientific arrangement as well as finance of public work Bulgaria 1987 10 0 Protocol No. 2: See footnote 1 Art. 10 (1): Beneficiary-Clause Canada 2001 11 10 China (without Hong Kong 11 10 Protocol No. 4: See footnote No.1 and Macau) 1985 Art. 11 (2): Limitation of tax rate only for beneficial owners Cote d`Ivoire 1979 11 15 Protocol No. 2: See footnote 1 Art. 11 (2): Limitation of tax rate only for beneficial owners Croatia 1987 0 See Yugoslavia (the old agreement persists) Cyprus 1974 11 10 Czech Republic 1980 0 See Czechoslovakia (the old agreement persists) Czechoslovakia (now two in- 11 0

MUNLIB01/MUNID/133234.04 Lovells - 20 - dividual states) 1980 Denmark 1995 11 0 Art. 11 (1): Beneficiary-Clause Ecuador 1982 11 15 Art. 11 (1) a): 10% tax rate, if the interests is paid in connection with sale of commercial or scientific equipment on credit or in connection with bank credit or finance of public work Egypt 1987 11 15 Protocol No. 2: See footnote 1 Estonia 1996 11 10 Protocol No. 5: See footnote 1 Art. 11 (2): Limitation of tax rate only for beneficial owners Finland 1979 11 0 France 1959/ 10 0 1969/ 1989/ 2001 Georgia 1981 5 See Soviet Union (the old agreement persists) Great Britain 1964/ VII 0 1970 Greece 1966 VII 10 Hungary 1977 11 0 Iceland 1971 11 0 India 1995 11 10 Protocol No. 4: See footnote 1 Art. 11 (2): Limitation of tax rate only for beneficial owners Indonesia 1990 11 10 Protocol No. 3: See footnote 1 Art. 11 (1): Limitation of tax rate only for beneficial owners Iran 1968 11 15 Ireland 1962 VII 0 Israel 1962/ 13 15 1977 Italy 1989 11 10 Protocol No. 8: See to footnote 1 Art. 11 (2): Limitation of tax rate only for beneficial owners Jamaica 1974 11 12,5 Art. 11 (2) a): 10% tax rate, if the beneficiary is an accepted credit institution of the source country Japan 1966/ 11 10 1979/ 1983 Kazakhstan 1997 11 10 Art. 11 (2): Limitation of tax rate only for beneficial owners Kenya 1977 11 15 Korea 2000 11 10 Art. 11 (2): Limitation of tax rate only for beneficial owners Kuwait 1987/ 11 0 Protocol No. 5: See footnote 1 1999 Art. 11 (1): Beneficiary-Clause Kyrgyzstan 1981 5 See Soviet Union (the old agreement persists) Latvia 1997 11 10 Protocol No. 5: See footnote 1 Art. 11 (2): Limitation of tax rate only for

beneficial owners Liberia 1970 11 20 Art. 11 (2) a): 10% tax rate, if the beneficiary is a credit institution Lithuania 1997 11 10 Protocol No. 5: See footnote 1 Art. 11 (2): Limitation of tax rate only for beneficial owners Luxembourg 1958/ 14 0 1973 Macedonia 1987 0 See Yugoslavia (the old agreement persists) Malaysia 1977 11 15 Malta 2001 11 0 Protocol No. 3: See footnote 1 Art. 11 (1): Beneficiary-Clause Mauritius 1978 11 non- restric- ted Mexico 1992 11 15 Protocol No. 6: See footnote 1 Art. 11 (2) b): 10%, tax rate, if the interests is paid to creditors such as assur- ance, banks and pension funds Art. 11 (2): Limitation of tax rate only for beneficial owners Moldova 1981 5 See Soviet Union (the old agreement persists) Mongolia 1994 11 10 Protocol No. 2: See footnote 1 Art. 11 (1): Limitation of tax rate only for beneficial owners Morocco 1972 11 10 Namibia 1993 11 0 Protocol No. 3: See footnote 1 The Netherlands 1959/ 14 0 1980/ 1991/ 2004 New Zealand 1978 11 10 Protocol No. 4 b): See footnote 1 Art. 11 (2): Limitation of tax rate only for beneficial owners Norway 1991 11 0 Art. 11 (1): Beneficiary-Clause Pakistan 1994 11 20 Protocol No. 4: See footnote 1 Art. 11 (2) a): 10% tax rate, if the beneficiary is an accepted credit institution of the source country Philippines 1983 11 15 Protocol No. 4: See footnote 1 Art. 11 (2) a): 10% tax rate, if the interest is paid in connection with sale of commercial or scientific equipment on credit or in connection with bank credit or public bonds, stocks and similar debts Art. 11 (2): Limitation of tax rate only for beneficial owners Poland 2003 11 5 Protocol No. 2: See footnote 1 Art. 11 (2): Limitation of tax rate only for beneficial owners Portugal 1980 11 15 Protocol No. 4: See footnote 1

Art. 11 (2) a): 10% tax rate, if the interest is paid to a bank creditor. This does only apply for interest with source in Portugal, if the financed project is of economic or social interest to the Portuguese government Art. 11 (2): Limitation of tax rate only for beneficial owners Romania 2001 11 3 Protocol No. 2: See footnote 1 Art. 11 (2): Limitation of tax rate only for beneficial owners Russia 1996 11 0 Protocol No. 5: See footnote 1 Art. 11 (1): Beneficiary-Clause Serbia & Montenegro 1987 0 See Yugoslavia (the old agreement persists) Singapore 1972 11 10 Slovakia 1980 0 See Czechoslovakia (the old agreement persists) Slovenia 1987 0 See Yugoslavia (the old agreement persists) South Africa 1973 8 10 Soviet Union (the old Double 8 5 Protocol No. 4: See footnote 1 Taxation Treaty still abides for some following states) 1981 Spain 1966 11 10 Sri Lanka 1979 11 10 Protocol No. 1: See footnote 1 Art. 11 (2) b): 10% tax rate applies to Sri Lanka only for this interests, which is paid for allowance, stocks and other securities in connection with money, which is drawn from abroad after the treaty had come into effect Art. 11 (2): Limitation of tax rate only for beneficial owners Sweden 1992 11 0 Art. 11 (1): Beneficiary-Clause Switzerland 1971/ 11 0 1978/ 1989/ 1992/ 2002 Tadzhikistan 2003 11 0 Protocol No. 2: See footnote 1 Art. 11 (1): Beneficiary-Clause Thailand 1967 11 25 Trinidad and Tobago 1973 11 15 Art. 11 (2) b): 10% tax rate, if the interest is paid to banks, whose domicile is in the country of residence of the other contracting state Tunisia 1975 11 10 Turkey 1985 11 15

Turkmenistan 1981 5 See Soviet Union (the old agreement persists)

UAE 1995 11 0 Protocol No. 5: See footnote 1 Art. 11 (1): Beneficiary-Clause Ukraine 1995 11 5 Protocol No. 2: See footnote 1 Art. 11 (2) a): 2% tax rate, if the interest is paid in connection with sale of commercial or scientific equipment on credit or in connection with sale of goods on credit or supply of services from one enterprise to another or in connection with a bank credit Art. 11 (2): Limitation of tax rate only for beneficial owners Uruguay 1987 11 15 Protocol No. 3: See footnote 1 USA 1989 11 0 Art. 11 (1), Protocol No. 10: Beneficiary- Clause Uzbekistan 1999 11 5 Protocol No. 4: See footnote 1 Art. 11 (2): Limitation of tax rate only for beneficial owners Venezuela 1995 11 5 Protocol No. 3: See footnote 1 Art. 11 (1): Limitation of tax rate only for beneficial owners Vietnam 1995 11 10 Protocol No. 4: See footnote 1 Protocol No. 5: 5% tax rate as long as there is no German source taxation on interest, which is paid to residents in Viet- nam Art. 11 (2): Limitation of tax rate only for beneficial owners Yugoslavia 1988 12 0 Art. 12 (1): Beneficiary-Clause Zambia 1973 11 10 Zimbabwe 1988 11 10 Protocol No. 3: See footnote 1 Art. 11 (2): Limitation of tax rate only for beneficial owners

1) No limitation of the right of taxation in the source country for interests derived from rights or debts-claims participating in profits (including income of participation rights or participation certificate, silent partners, profit participating loan, account obligation), if these payments are deductible in the country of source in determining the taxable profits of the debtor.

MUNLIB01/MUNID/133234.04 Lovells