Exemption method for double taxation: resident state exempts or allows deduction for foreign-source taxes under treaty limits. The Exemption Method exempts in the resident State income or capital that may be taxed in the other Contracting State, subject to exceptions where taxation by that other State is permitted because the income or capital is attributable to its residents. For items taxable under specified articles (such as dividends and interest), the resident State may allow a deduction equal to tax paid in the source State, limited to the part of the resident's tax attributable to those items. Exempted income or capital may still be taken into account when calculating tax on remaining income or capital.