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ARTICLE 11

Interest

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

(2) However, such interest may be taxed in the Contracting State in which it arises and according to the laws of that State; but if the recipient of the interest is the resident of the other Contracting State, then the tax so charged shall not exceed 10 percent of the gross amount of the interest.

The competent authorities of the Contracting States shall resolve the modalities of the application of this limitation through mutual agreement.

(3) Notwithstanding the provisions of paragraph (2), interests originating from a Contracting State shall be exempt from taxation in that Contracting State provided that they are obtained for the beneficial owner or obtained in for the beneficial owner in relation to a loan or credit offered, guaranteed, or policy holder by:

  • (a) the Government, a political subdivision or a local company or the Central Bank of the other Contracting State; or
  • (b)
    • (i) in case of Mexico, the Banco Nacional de Comercio Exterior, S.N.C., Nacional Financiera, S.N.C., and el Banco Nacional de Obras y Servicios Públicos, S.N.C.; and
    • (ii) in the case of Slovakia, "Eximbanka SR" and "Slovenská zárucná a rozvojová banka, a.s.".

Nevertheless, the exemption mentioned in the clause (b) shall apply only if the loan or respective credit is offered, guaranteed or insured, for a period less than three years.

(4) The term "interest" as used in this Article means income from debt-claims of any kind, whether or not secured by mortgage and whether or not carrying a right to participate in the debtors' profits, and in particular income from government securities and income from bonds or debentures, including premiums and prizes attached to such securities, bonds or debentures, as well as any other income subject to the same taxation law as the income from capital that is lent under the law of the State in which the income arises. According to the paragraph (2) of the Article 10, the term 'interests' shall not include any another type of income as dividends

(5) The provisions of paragraphs (1) and (2) of this Article shall not apply if the recipient 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 and the debt-claim in respect of which the interest is paid is effectively connected to such permanent establishment. In such case, the provisions of Article 7 of this Convention, shall apply.

(6) Interest shall be deemed to arise in a Contracting State when the payer is 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 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 Contracting State in which the permanent establishment is situated.

(7) Where, by reason of a special relationship, either between the payer and the beneficial owner or between both of them and some other person, the amount of 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 special 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 State, due regard being had to the other provisions of this Convention.