(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 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 10 percent of the gross amount of the interest.
(3) 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 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.
(4) Notwithstanding the provisions of paragraph 2, interest arising in the Sultanate of Oman and paid to the Islamic Republic of Iran, including: Ministries, other Governmental institutions, Nongovernmental Public Foundations, Foundations of the Islamic Revolution, municipalities, Central Bank and other banks wholly owned by the Government of the Islamic Republic of Iran, shall be exempt from tax in the Sultanate of Oman.
(5) Notwithstanding the provisions of paragraph 2, interest arising in the Islamic Republic of Iran and paid to the Government of the Sultanate of Oman shall be exempt from tax in the Islamic Republic of Iran. For the purposes of this Article, the term "Government" shall include:
- (i) the Central Bank of Oman;
- (ii) the State General Reserve Fund;
- (iii) the Omani Development bank; and
- (iv) any other statutory body or institution wholly or mainly owned by the Government of the Sultanate of Oman.
(6) The provisions of paragraphs 1 and 2 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 Contracting 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 provisions of Article 7 or Article 14, as the case may be, shall apply.
(7) Interest shall be deemed to arise in a Contracting State when the payer is that State itself, 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 a permanent establishment or fixed base, then such interest shall be deemed to arise in the Contracting State 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 of interest. In such 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 Agreement.