- 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 be taxed in the State in which it arises, and according to the law of that State, but the tax so charged shall not exceed:
-
- a)10 per cent of the gross amount of such interest if it is paid on a loan made for a period of more than 7 years; and
- b)15 per cent of the gross amount of such interest in all other cases.
- 3
- Notwithstanding the provisions of paragraph 2 of this Article, interest arising in one of the States and paid to the Government of the other State or local authority thereof, the central bank of that other State or any agency or instrumentality (including financial institution) wholly owned by that Government or that central bank, or by both shall be exempt from tax in the first-mentioned State.
- 4
- The term “interest” as used in this Article means income from Government securities, bonds or debentures, whether or not secured by mortgage and whether or not carrying a right to participate in profits, and debt-claims of every kind as well as all other income assimilated to income from money lent by the taxation law of the State in which the income arises.
- 5
- The provisions of paragraphs 1 and 2 shall not apply if the recipient of the interest, being a resident of one of the States, has in the other State in which the interest arises a permanent establishment with which the debt-claim from which the interest arises is effectively connected. In such a case, the provisions of Article 7 shall apply.
- 6
- 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 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 State in which the permanent establishment is situated.
- 7
- Where, owing to a special relationship between the payer and the recipient or between both of them and some other person, the amount of the interest paid, 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 recipient in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that case, the excess part of the payments shall remain taxable according to the law of each State, due regard being had to the other provisions of this Convention.
