- 1
- Interest arising in one of the States and paid to a resident of the other State may be taxed in that other State.
- 2
- However, such interest may also be taxed in the State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed 10 per cent of the gross amount of the interest.
- 3
- Notwithstanding the provisions of paragraph 2, interest arising in one of the States and paid to a resident of the other State who is the beneficial owner thereof shall be taxable only in that other State to the extent that such interest:
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- (a)is paid by a purchasing enterprise to a selling enterprise in connection with the sale on credit of any equipment or merchandise, except where the sale is made between persons dealing with each other not at arm's length; or
- (b)is paid in respect of a bond, debenture or other similar obligation of the government of one of the States, or of a political subdivision or local authority thereof; or
- (c)is paid to the other State or a political subdivision or local authority thereof, the central bank of that other State or to any instrumentality (including a financial institution) controlled by that State or subdivision or authority thereof; or
- (d)is paid in respect of a loan made, guaranteed or insured, or a credit extended, guaranteed or insured by any financial institution specified and agreed in letters exchanged between the competent authorities of the States; or
- (e)is paid to a person which was constituted and is operated exclusively to administer or provide benefits under one or more pension, retirement or other employee benefits plans provided that:
- (i)such person is generally exempt from tax in the other State; and
- (ii)the interest is not derived from carrying on a trade or a business or from a related person.
- 4
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- (a)Notwithstanding the provisions of paragraph 2, interest arising in Canada and paid by a company which is a resident of Canada to a resident of the Netherlands which is the beneficial owner thereof, with which that company is dealing at arm's length, on any obligation where the evidence of the indebtedness was issued by that company after June 23, 1975, shall, if under the terms of the obligation or any agreement relating thereto, the company may not, under any circumstances, be obliged to pay more than 25 per cent of the principal amount thereof until after 5 years from the date of issue except in the event of a failure or default under the said terms or agreement or if the said terms or agreement become unlawful or are changed by legislation, a court, statutory board or commission, be taxable only in the Netherlands.
- (b)Notwithstanding the provisions of Article 31 Canada may at any time give to the Netherlands, through diplomatic channels, written notice of suspension of sub-paragraph (a) for any period for which the taxation legislation of Canada does not provide for an exemption from non-resident withholding tax on interest as dealt with in that sub-paragraph. In such event sub-paragraph (a) shall not have effect in respect of such interest paid on obligations issued after the later of six months after the date of such notice and 31 December of the calendar year in which the notice is given.
- (c)For the purposes of this paragraph, where all or any portion of the interest payable on an obligation is contingent or dependent upon the use of or production from property in Canada, the interest shall be deemed not to be interest.
- 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, as well as income which is subjected to the same taxation treatment as income from money lent by the laws of the States in which the income arises. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article. However, the term ,,interest” does not include income dealt with in Article 10.
- 6
- The provisions of paragraphs 1, 2, 3 and 4 shall not apply if the beneficial owner of the interest, being a resident of one of the States, carries on business in the other State in which the interest arises, through a permanent establishment situated therein, or performs in that other 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 one of the States when the payer is that State itself, a political subdivision, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of one of the States or not, has in one of the States 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.
- 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 State, due regard being had to the other provisions of this Convention.
