(1) Interest arising in a Contracting State and paid to a resi-
dent of the other Contracting State may be taxed in that other
State.
(2) However, such interest may also be taxed in the Contract-
ing 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 per cent of the gross amount of the interest.
(3) Notwithstanding the provisions of paragraph 2,
a) interest arising in Albania and paid in consideration of a loan
guaranteed by Germany in respect of export or foreign
direct investment or paid to the Government of the Federal
Republic of Germany, the Deutsche Bundesbank, the Kredit -
anstalt für Wiederaufbau or the DEG – Deutsche Investitions-
und Entwicklungsgesellschaft mbH shall be exempt from
Albanian tax;
b) interest arising in Germany and paid in consideration of a loan
guaranteed by Albania in respect of export or foreign direct
investment or paid to the Government of Albania or the
Central Bank of Albania shall be exempt from German tax.
(4) 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.
Penalty charges for late payment shall not be regarded as
interest for the purpose of this Article.
(5) The provisions of paragraphs 1 to 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, 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.
(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 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.
(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 Agreement.