ARTICLE 12

Interest

(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 State, but if the recipient is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

(3) Notwithstanding the provisions of the preceding paragraphs, interest arising in a Contracting State and paid to a resident of the other Contracting State shall be taxable only in that other State, if the beneficial owner of the interest is:

• (1) In the case of the United Arab Emirates:
  • (a) the federal or local Governments, a political subdivision or a local authority;
  • (b) the following entities as long as they are wholly owned by the federal or local Governments of the United Arab Emirates:
    • (i) The Central Bank of the United Arab Emirates,
    • (ii) The Abu Dhabi Investment Authority,
    • (iii) The Abu Dhabi Investment Council,
    • (iv) Mubadala Development Company (Mubadala),
    • (v) Dubai World,
    • (vi) Investment Corporation of Dubai (ICD),
    • (vii) United Arab Emirates Investment Authority,
    • (viii) International Petroleum Investment Company (IPIC), and
    • (ix) Any other governmental financial institutions as may be specified, according to the domestic legislation and notified to the competent authority of the other Contracting State.
• (2) In the case of Ecuador:
  • (a) the Government, a political subdivision or a local authority;
  • (b) the following entities as long as they are wholly owned by the Government of Ecuador:
    • (i) The Central Bank of Ecuador, and
    • (ii) Any other governmental financial institutions as may be specified, according to the domestic legislation and notified to the competent authority of the other Contracting State.

(4) 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 and debentures, as well as any other income that is subjected to the same taxation treatment as income from money lent by the taxation law of the Contracting State in which the income arises. The term “interest”, however, does not include income dealt with in Article 11.

(5) The provisions of paragraph 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 generating that interest is attributable to such permanent establishment or fixed base. In such case the provisions of Article 8 or Article 15, as the case may be, shall apply.

(6) Interest shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the interest, whether he is 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 a 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.

(7) 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, having regard to the debt-claim for which it is paid, 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 Agreement.

(8) The provisions of this Article shall not apply if the purpose or one of the main purposes of any person connected with the creation or allocation of credit on which interest is paid, were to take out the advantages of this Article through such creation or allocation.