(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, that 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
10 per cent of the gross amount of the interest.
(3) Notwithstanding paragraph 2, interest arising in a Contract-
ing State and beneficially owned by a resident of the other
Contracting State may not be taxed in the first-mentioned State
if:
a) the interest is derived by a Contracting State or by a political
or administrative subdivision or a local authority thereof, or
by any other body exercising governmental functions in a
Contracting State, or by a bank performing central banking
functions in a Contracting State; or
b) the interest is derived by a financial institution which is unre-
lated to and dealing wholly independently with the payer. For
the purposes of this Article, the term “financial institution”
means a bank or other enterprise substantially deriving its
profits by raising debt finance in the financial markets or by
taking deposits at interest and using those funds in carrying
on a business of providing finance.
(4) Notwithstanding paragraph 3, interest referred to in sub-
paragraph b) of that paragraph may be taxed in the State in
which it arises at a rate not exceeding 10 per cent of the gross
amount of the interest if the interest is paid as part of an arrange-
ment involving back-to-back loans or other arrangement that is
economically equivalent and intended to have a similar effect to
back-to-back loans.
(5) The term “interest” as used in this Article means income
from debt-claims of every kind, whether or not secured by mort-
gage and whether or not carrying a right to participate in the
debtor’s profits, and in particular, interest from government
securities and income from bonds or debentures, as well as
income which is subjected to the same taxation treatment as
income from money lent by the law of the Contracting State in
which the income arises. However, the term “interest” does not
include income dealt with in Article 10.
(6) The provisions of paragraphs 1 and 2, subparagraph b) of
paragraph 3 and paragraph 4 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 that permanent establishment. In
such case the provisions of Article 7 shall apply.
(7) Interest shall be deemed to arise in a Contracting State
when the payer is a resident of that State for the purposes of its
tax. Where, however, the person paying the interest, whether the
person is a resident of a Contracting State or not, has in a Con-
tracting State or outside both Contracting States a permanent
establishment in connection with which the indebtedness on
which the interest is paid was incurred, and that interest is borne
by that permanent establishment, then the interest shall be
deemed to arise in the State in which the permanent establish-
ment is situated.
(8) Where, by reason of a special relationship between the
payer and the beneficial owner of the interest, 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 might reasonably have been expected to 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 paid shall remain taxable according to the
laws of each Contracting State, due regard being had to the
other provisions of this Agreement.