DER STAATSSEKRETAR DES AUSWARTIGEN AMTS BONN, 29, August 1989 His Excellency Mr. Vernon Walters Ambassador of the United States of America Bonn Excellency, 　　I have the honor to refer to the Convention signed today between the Federal Republic of Germany and the United States of America 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 and to inform you on behalf of the Government of the Federal Republic of Germany of the following: 　　If the competent authorities of both Contracting States agree to submit a disagreement regarding the interpretation or application of this Convention to arbitration according to paragraph 5 of Article 25, the following procedures will apply: 　　1. The competent authorities may agree to invoke arbitration in a specific case only after fully exhausting the procedures available under paragraphs 1 to 4 of Article 25, and if the taxpayer(s) consent(s) to the arbitration and agree(s) in writing to be bound by the arbitration decision. The competent authorities will not generally accede to arbitration with respect to matters concerning the tax policy or domestic tax law of either Contracting State. 　　2. The competent authorities shall establish an arbitration board for each specific case in the following manner: 　　(a) An arbitration board shall consist of not less than three members. Each competent authority shall appoint the same number of members, and these members shall agree on the appointment of the other member(s). 　　(b) The other member(s) of the arbitration board shall be from either Contracting State or from another OECD member country. The competent authorities may issue further instructions regarding the criteria for selecting the other member(s) of the arbitration board. 　　(c) Arbitration board members (and their staffs) upon their appointment must agree in writing to abide by and be subject to the applicable confidentiality and disclosure provisions of both Contracting States and the Convention. In case those provisions conflict, the most restrictive condition will apply. 　　3. The competent authorities may agree on and instruct the arbitration board regarding specific rules of procedure, such as appointment of a chairman, procedures for reaching a decision, establishment of time limits, etc. Otherwise, the arbitration board shall establish its own rules of procedure consistent with generally accepted principles of equity. 　　4. Taxpayers and/or their representatives shall be afforded the opportunity to present their views to the arbitration board. 　　5. The arbitration board shall decide each specific case on the basis of the Convention, giving due consideration to the domestic laws of the Contracting States and the principles of international law. The arbitration board will provide to the competent authorities an explanation of its decision. The decision of the arbitration board in a particular case shall be binding on both Contracting States and the taxpayer(s) with respect to that case. While the decision of the arbitration board shall not have precedential effect, it is expected that such decisions ordinarily will be taken into account in subsequent competent authority cases involving the same taxpayer(s), the same issue(s), and substantially similar facts, and may also be taken into account in other cases where appropriate. 　　6. Costs for the arbitration procedure will be borne in the following manner: 　　(a) Each Contracting State shall bear the cost of remuneration for the member(s) appointed by it, as well as for its representation in the proceedings before the arbitration board; 　　(b) the cost of remuneration for the other member(s) and all other costs of the arbitration board shall be shared equally between the Contracting States; and 　　(c) the arbitration board may decide on a different allocation of costs. However, if it deems appropriate in a specific case, in view of the nature of the case and the roles of the parties, the Competent Authority of a Contracting State may require the taxpayer(s) to agree to bear that Contracting State's share of the costs as a prerequisite for arbitration. 　　7. The competent authorities may agree to modify or supplement these procedures; however, they shall continue to be bound by the general principles established herein. 　　If this proposal meets with the approval of the Government of the United States of America, this Note and your reply thereto shall constitute the agreement of our two governments on these matters. 　　Accept, Excellency, the expression of my highest consideration. 　　　　　　　　　　　　　　　　　　　　　　　　　　(s) Lautenschlager 　　　　　　　　　　　　　EMBASSY OF THE 　　　　　　　　　　　　UNITED STATES OF AMERICA 　　　　　　　　　　　　Bonn, August 29, 1989 His Excellency Dr. Hans Werner Lautenschlager State Secretary of the Foreign Office Bonn Excellency, 　　I have the honor to confirm receipt of your Note of today's date which roads as follows: 　　"I have the honor to refer to the Convention signed today between the Federal Republic of Germany and the United States of America 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 and to inform you on behalf of the Government of the Federal Republic of Germany of the following: 　　If the competent authorities of both Contracting States agree to submit a disagreement regarding the interpretation or application of this Convention to arbitration according to paragraph 5 of Article 25, the following procedures will apply: 　　1. The competent authorities may agree to invoke arbitration in a specific case only after fully exhausting the procedures available under paragraphs 1 to 4 of Article 25, and if the taxpayer(s) consent(s) to the arbitration and agree(s) in writing to be bound by the arbitration decision. The competent authorities will not generally accede to arbitration with respect to matters concerning the tax policy or domestic tax law of either Contracting State. 　　2. The competent authorities shall establish an arbitration board for each specific case in the following manner: 　　(a) An arbitration board shall consist of not less than three members. Each competent authority shall appoint the same number of members, and these members shall agree on the appointment of the other member(s). 　　(b) The other member(s) of the arbitration board shall be from either Contracting State or from another OECD member country. The competent authorities may issue further instructions regarding the criteria for selecting the other member(s) of the arbitration board. 　　(c) Arbitration board members (and their staffs) upon their appointment must agree in writing to abide by and be subject to the applicable confidentiality and disclosure provisions of both Contracting States and the Convention. In case those provisions conflict, the most restrictive condition will apply. 　　3. The competent authorities may agree on and instruct the arbitration board regarding specific rules of procedure, such as appointment of a chairman, procedures for reaching a decision, establishment of time limits, etc. Otherwise, the arbitration board shall establish its own rules of procedure consistent with generally accepted principles of equity. 　　4. Taxpayers and/or their representatives shall be afforded the opportunity to present their views to the arbitration board. 　　5. The arbitration board shall decide each specific case on the basis of the Convention, giving due consideration to the domestic laws of the Contracting States and the principles of international law. The arbitration board will provide to the competent authorities an explanation of its decision. The decision of the arbitration board in a particular case shall be binding on both Contracting States and the taxpayer(s) with respect to that case. While the decision of the arbitration board shall not have precedential effect, it is expected that such decisions ordinarily will be taken into account in subsequent competent authority cases involving the same taxpayer(s), the same issue(s), and substantially similar facts, and may also be taken into account in other cases where appropriate. 　　6. Costs for the arbitration procedure will be borne in the following manner: 　　(a) Each Contracting State shall bear the cost of remuneration for the member(s) appointed by it, as well as for its representation in the proceedings before the arbitration board; 　　(b) the cost of remuneration for the other member(s) and all other costs of the arbitration board shall be shared equally between the Contracting States; and 　　(c) the arbitration board may decide on a different allocation of costs. However, if it deems appropriate in a specific case, in view of the nature of the case and the roles of the parties, the Competent Authority of a Contracting State may require the taxpayer(s) to agree to bear that Contracting State's share of the costs as a prerequisite for arbitration. 　　7. The competent authorities may agree to modify or supplement these procedures; however, they shall continue to be bound by the general principles established herein. 　　If this proposal meets with the approval of the Government of the United States of America, this Note and your reply thereto shall constitute the agreement of our two governments on these matters." 　　I have the honor to inform you, that my Government agrees to the above.Accept, Excellency, the expression of my highest consideration. 　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　(s) V.A.W.