- 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 Contracting 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 per cent of the gross amount of the interest.
- 3
- Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be taxable only in the other Contracting State if:
-
- a)the interest is beneficially owned by the Government of that other Contracting State, a political subdivision or local authority thereof, or the central bank of that other Contracting State or any institution owned by that Government;
- b)the interest is beneficially owned by a resident of that other Contracting State with respect to debt-claims guaranteed, insured or indirectly financed by the Government of that other Contracting State, a political subdivision or local authority thereof, or the central bank of that other Contracting State or any institution owned by that Government;
- c)the interest is beneficially owned by a resident of that other Contracting State that is either:
- (i)a bank;
- (ii)an insurance company;
- (iii)a securities company; or
- (iv)any other enterprise, provided that in the three taxable years preceding the taxable year in which the interest is paid, the enterprise derives more than 50 per cent of its liabilities from the issuance of bonds in the financial markets or from taking deposits at interest, and more than 50 per cent of the assets of the enterprise consist of debt-claims against persons that do not have with the enterprise a relationship described in subparagraph a) or b) of paragraph 1 of Article 9;
- d)the interest is beneficially owned by a pension fund that is a resident of that other Contracting State, provided that such interest is not derived from the carrying on of a business, directly or indirectly, by such pension fund; or
- e)the interest is beneficially owned by a resident of that other Contracting State and paid with respect to indebtedness arising as a consequence of the sale on credit by a resident of that other Contracting State of any equipment, merchandise or service.
- 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 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, and all other income that is subjected to the same taxation treatment as income from money lent by the tax laws of the Contracting State in which the income arises. Income dealt with in Article 10 shall not be regarded as interest for the purposes of this Convention.
- 5
- The provisions of paragraphs 1, 2 and 3 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 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.
- 6
- Interest shall be deemed to arise in a Contracting State when the payer is a resident of that Contracting State. Where, however, the person paying the interest, whether such person is a resident of a Contracting State or not, has in a Contracting State or a state other than the Contracting States, a permanent establishment in connection with which the indebtedness on which the interest is paid were incurred, and such interest is borne by such permanent establishment, then:
-
- a)if the permanent establishment is situated in a Contracting State, such interest shall be deemed to arise in that Contracting State; and
- b)if the permanent establishment is situated in a state other than the Contracting States, such interest shall not be deemed to arise in either Contracting State.
- 7
- 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 Contracting State, due regard being had to the other provisions of this Convention.
- 8
- A resident of a Contracting State shall not be considered the beneficial owner of interest arising in the other Contracting State in respect of a debt-claim if such debt-claim would not have been established unless a person:
-
- a)that is not entitled to benefits with respect to interest arising in the other Contracting State which are equivalent to, or more favourable than, those available under this Convention to a resident of the first-mentioned Contracting State; and
- b)that is not a resident of either Contracting State;
- owned an equivalent debt-claim against the first-mentioned resident.
