1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other 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 5 percent of the gross amount of the interest.
3. Notwithstanding the provisions of paragraph 2:
a) interest (in respect of a loan made in connection with the performance of governmental functions) arising in a Contracting State and paid to the Government of the other Contracting State or any agency or instrumentality (including a financial institution) wholly owned by that Government shall be exempt from tax in the first-mentioned State;
b) interest arising in a Contracting State, beneficially owned by a resident of the other Contracting State, and paid in respect of a bond, debenture, or other similar obligation issued by the Government of the first-mentioned State or by a political subdivision, local authority or instrumentality thereof shall be exempt from tax in that first-mentioned State; and
c) interest arising in a Contracting State, beneficially owned by a resident of the other Contracting State which is a company described in paragraph 5 of Article 16 (Limitation on Benefits), shall be exempt from tax in that first-mentioned State.
4. The term "interest" as used in this Convention 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.
5. The provisions of paragraph 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 State independent personal services from a fixed base situated therein, and the interest is attributable to such permanent establishment or fixed base. In such case the provisions of Article 7 (Business profits) or Article 14 (Independent Personal Services), as the case may be, shall apply.
6. Interest shall be deemed to arise in a Contracting State when the payor is that State itself or a political subdivision, local authority, or 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 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.
7. Where, owing to a special relationship between the payor 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 payor 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 the Convention.
8. A Contracting State may not impose any tax on interest paid by a resident of the other Contracting State, except insofar as:
a) the interest is paid to a resident of the first- mentioned State;
b) the interest is attributable to a permanent establishment or a fixed base situated in the first-mentioned State; or
c) the interest arises in the first-mentioned State.
