(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 be taxed in the Contracting State in which it arises and according to the law of that State, but if the recipient is the beneficial owner of the interest, the tax so charged shall not exceed 5% (five percent) of the gross amount of the interest.
(3) Notwithstanding the provisions of paragraph (2) interest arising in a Contracting State and derived by the government of the other Contracting State including local authorities thereof, the central bank or any financial institution controlled by that Government, or interest derived on loans guaranteed by that Government shall be exempted from tax in the first-mentioned 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 whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures including the premium and prizes attaching to such securities, bonds, or debentures. Penalty charges for late payments shall not be regarded as interest for the purpose of this article.
(5) The provisions of paragraph (1) 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 or fixed base situated therein, or the person that performs in that other 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 provision of Article 7 or 14 as the case may be shall apply.
(6) Interest shall be deemed to arise in a Contracting State when the payer is the Government of that State, a political subdivision, a local authority or administrative territorial units thereof, or a resident of that State. Where however, the person paying the interest, whether he is 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 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 given to the other provisions of this Agreement.