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Treaty Technical Explanation (1996), Mod-4 sec. 1.23, at 4-84
(1997).
The treaty-based system of U.S. credits and German credits
and exemptions has, in certain cases, been modified as described
in paragraph 3 of article 23, where the unique position of U.S.
citizens resident in Germany is addressed. That paragraph
provides that where a foreign tax credit is given by Germany for
U.S. tax paid on U.S.-source income under article 23(2), the
credit need not exceed the rate of tax provided for in the U.S.-
Germany treaty, even if the United States actually taxes its
citizen on that U.S.-source income at a rate higher than the
treaty rate. This can result in double taxation, because the
taxpayer must pay the full U.S. tax, rather than the reduced
treaty rate, and yet receives less than the full foreign tax
credit from Germany. See U.S. Treasury Department Technical
Explanation of the Convention and Protocol Between the United
States of America and the Federal Republic of Germany for the
Avoidance of Double Taxation and the Prevention of Fiscal Evasion
with Respect to Taxes on Income and Capital and to Certain Other
Taxes, 2 CCH Tax Treaties par. 3255, at 28,215. Accordingly, a
U.S. citizen resident in Germany is disadvantaged when compared
to a non-U.S. citizen resident in Germany receiving the same
U.S.-source income, because the non-U.S. citizen would receive
full credit from Germany for the tax paid to the United States.
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