ARTICLE 11

Interest

(1) Interest arising in a territory and paid to a resident of the other territory may be taxed in that other territory.

(2) However, such interest may also be taxed in the territory in which it arises and according to the laws of that territory, but if the beneficial owner of the interest is a resident of the other territory, the tax so charged shall not exceed 10 percent of the gross amount of the interest.

(3) Notwithstanding the provisions of paragraph 2 of this Article, interest arising in a territory shall be exempt from tax in that territory if:

• (a) it is paid to and beneficially owned by an authority of the other territory, or any public institution of that other territory as may be agreed between the competent authorities; or
• (b) it is paid in consideration of a loan guaranteed by an authority of the other territory in respect of export or foreign direct investment.

(4) Notwithstanding the provisions of paragraphs 2 and 3 of this Article, the tax so charged shall not exceed 15 percent of the gross amount of the interest if the interest is the distributed income of a real estate investment trust or a real estate asset trust of the territory referred to in paragraph 3(b) of Article 2 that is tax-exempt regarding all or parts of its profits or that can deduct the distributions in determining its profits. A real estate investment trust and a real estate asset trust are the trusts governed by the provisions of the Real Estate Securitization Act.

(5) 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 profit, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures. However, the term "interest" shall not include for the purpose of this Article penalty charges for late payment and interest on debt-claims resulting from deferred payments for goods, merchandise or services supplied by an enterprise.

(6) The provisions of paragraphs 1 to 4 shall not apply if the beneficial owner of the interest, being a resident of a territory, carries on business in the other territory in which the interest arises, through a permanent establishment situated therein and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.

(7) Interest shall be deemed to arise in a territory when the payer is a resident of that territory. Where, however, the person paying the interest, whether he is a resident of a territory or not, has in a territory a permanent establishment in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment, then such interest shall be deemed to arise in the territory in which the permanent establishment 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 territory, due regard being had to the other provisions of this Agreement.