(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 beneficial owner of the interest is a resident of the other Contracting State, the tax so charged shall not exceed 5 percent of the gross amount of the interest. The competent authorities of the Contracting States shall resolve the modalities of application of this limitation.
(3) Notwithstanding the provision of paragraph (2) of this Article, interest arising from the provisions of paragraph (1) of this Article shall be taxed only in the Contracting State where the recipient is a resident, if such recipient is the beneficial owner of this interest and the interest is paid:
- (a) to the government of the Federal Republic of Germany or the government of the Republic of Poland;
- (b) for any kind of loan for the promotion of exports that is granted, backed, or secured by a public entity;
- (c) in connection with sale of any commercial, mercantile, or scientific equipment on credit;
- (d) in connection with the sales of goods by an enterprise to another enterprise on credit;
- (e) for any types of loans granted by a bank.
(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 clause establishing the right to participate in debtor's profits, and in particular, income from government securities and income from bonds and debentures, including premiums and prizes attached to such securities, bonds or debentures. Penalty charges for late payment shall not be considered as interest under the meaning of this Article.
(5) The provision of paragraphs (1), (2) and (3) of this Article 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 an independent personal service from a fixed place of business situated therein, and the debt-claim in respect of which the interest is paid, is effectively connected with such permanent establishment or fixed place of business. In such case the provision of Article 7 or Article 14, shall apply.
(6) Interest shall be deemed to arise in a State when the payer is that State itself, one of its political subdivisions or local authorities, 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 either between the payer and the beneficial owner of the interest 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 a similar relationship, the provision of this Article shall apply only to the last-mentioned amount. In such case, the excess interest shall remain taxable according to the laws of each Contracting States due regard being given to the other provisions of this Convention.