(1) Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other 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 the beneficial owner of the interest the tax so charged shall not exceed 10% of the gross amount of the interest.
The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation.
(3) Notwithstanding the provisions of paragraph (2), interest mentioned in paragraph (1) shall be taxable only in the Contracting State of which the recipient of the interest is a resident, if the recipient is the beneficial owner of the interest and the interest is paid:
- (a) in connection with the sale on credit of goods or merchandise delivered by one enterprise to another enterprise;
- (b) in connection with the sale on credit of industrial, commercial or scientific equipment;
- (c) for bonds or similar obligations of the Government of a Contracting State, a "Land", a political subdivision or a local authority thereof; or
- (d) to the Government of a Contracting State, a "Land", a political subdivision or a local authority thereof or to the Central Bank of a Contracting State.
(4) The term "interest" as used in this Article means income from government securities, bonds or debentures whether or not secured by mortgage and whether or not carrying a right to participate in profits, and debt-claims of every kind, as well as all other income assimilated to income from money lent by the taxation law of the State in which the income arises. However, the term "interest" does not include income mentioned in Article (10).
(5) The provisions of paragraphs (1), (2) and (3) 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 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 a case, the interest may be taxed in that other Contracting State in accordance with its domestic laws.
(6) Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a "Land", a political subdivision, a local authority or 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 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 a 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.