(1) Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State.
(2) However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that Contracting State, but if the beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed:
- (a) 4 per cent of the gross amount of the interest if the beneficial owner of the interest is either:
- (i) a bank;
- (ii) an insurance company;
- (iii) an enterprise substantially deriving its gross income from the active and regular conduct of a lending or finance business involving transactions with unrelated persons, where the enterprise is unrelated to the payer of the interest. For the purposes of this clause, the term “lending or finance business” includes the business of issuing letters of credit, providing guarantees or providing credit card services;
- (iv) an enterprise that sold machinery or equipment, where the interest is paid with respect to indebtedness arising as part of the sale on credit of such machinery or equipment.
- (b) 10 per cent of the gross amount of the interest in all other cases.
For the purposes of sub-paragraph (a), an enterprise is unrelated to a person if the enterprise does not have with the person a relationship described in sub-paragraph (a) or (b) of paragraph (1) of Article 9.
(3) The term “interest” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and in particular, income from government securities and income from bonds or debentures, including premiums attaching to such securities, bonds or debentures, and all other income that is subjected to the same taxation treatment as income from money lent by the tax laws of the Contracting State in which the income arises. Income dealt with in Article 10 shall not, however, be regarded as interest for the purposes of this Convention.
(4) The provisions of paragraphs (1) and (2) shall not apply if the beneficial owner of the interest, being a resident of a Contracting State, carries on business in the other Contracting State in which the interest arises through a permanent establishment situated therein, or performs in that other Contracting State independent personal services from a fixed base situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.
(5) Interest shall be deemed to arise in a Contracting State when the payer is a resident of that Contracting State. Where, however, the person paying the interest, whether a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.
(6) Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, for whatever reason, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.
(7) In the event that pursuant to a convention concluded with a country after the date of signature of this Convention, Chile agrees to a lower rate of tax in paragraph (2) of this Article with respect to entities described in sub-paragraph (k) of paragraph (1) of article 3, such new rate shall automatically apply under the same conditions as established in that other convention, when the provision of the first-mentioned convention becomes applicable. In such case, the competent authorities shall by mutual agreement settle the mode of application of this paragraph.