ARTICLE 11

Interest

(1) Interest arising in the sovereign territory of a Contracting Party and paid to a resident of the sovereign territory of the other Contracting Party may be taxed in the sovereign territory of that other Contracting Party, if such resident is the beneficial owner of the interest.

(2) However, such interest may also be taxed in the sovereign territory of the Contracting Party in which it arises and according to the laws of the state of that Contracting Party, but if the beneficial owner of the interest is a resident of the sovereign territory of the other Contracting Party, the tax so charged shall not exceed 5 per cent of the gross amount of the interest.

(3) Notwithstanding the provisions of paragraph (2):

• (a) interest arising in the German sovereign territory and paid to the Macedonian government shall be exempt from German tax;
• (b) interest arising in the Macedonian sovereign territory and paid in consideration of a loan guaranteed by the Federal Republic of Germany in respect of export or foreign direct investment or paid to the Government of the Federal Republic of Germany, the Deutsche Bundesbank, the Kreditanstalt fürWiederaufbau or the Deutsche Investitionsund Entwicklungsgesellschaft shall be exempt fromMacedonian tax.

(4) Notwithstanding the provisions of paragraph (2), interest as referred to in paragraph (1) may be taxed only in the sovereign territory of the Contracting Party of which the recipient is a resident if the recipient is the beneficial owner of the interest and the interest is paid:

• (a) in connection with the sale of commercial or scientific equipment on credit, or
• (b) in connection with the sale of goods by an enterprise to another enterprise on credit.

(5) 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 and prizes attaching to such securities, bonds or debentures. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article.

(6) The provision of paragraph (1) shall not apply if the beneficial owner of the interest, being a resident of the sovereign territory of a Contracting Party, carries on business in the sovereign territory of the other Contracting Party in which the interest arises, through a permanent establishment situated therein, or performs in that other sovereign territory 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.

(7) Interest shall be deemed to arise in the sovereign territory of a Contracting Party if the debtor is the state of this Contracting Party or, in the case of the German Contracting Party, also one of its Länder or one of its political subdivisions, or local authority thereof, or a resident of the sovereign territory of that Contracting Party. Where, however, the person paying the interest, whether he is a resident of the sovereign territory of a Contracting Party or not, has in the sovereign territory of a Contracting Party 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 sovereign territory of the Contracting Party in which the permanent establishment or fixed base is situated.

(8) 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 Party, due regard being had to the other provisions of this Agreement.