(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 Con-
tracting 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 Germany and paid in consideration of a
loan guaranteed by the Government of Bulgaria, or paid to
the Government of Bulgaria, any local authority thereof, or
any financial institution, wholly owned by the Government of
Bulgaria shall be exempt from German tax;
b) interest arising in Bulgaria and paid in consideration of a
loan guaranteed by Germany in respect of export or foreign
direct investment or paid to the Government of Germany,
the Deutsche Bundesbank, the Kreditanstalt für Wiederauf-
bau or the Deutsche Investitions- und Entwicklungsge-
sellschaft shall be exempt from Bulgarian tax.
(4) Notwithstanding the provisions of paragraph 2, interest
as referred to in paragraph 1 may be taxed only in the Contract-
ing State of which the recipient is a resident if the recipient is the
beneficial owner of the interest and the interest is paid
a) in connection with the sale of industrial, commercial or
scientific equipment on credit,
b) in connection with the sale of goods by an enterprise to
another enterprise on credit, or
c) for a loan of any kind made by a bank.
(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, income from government
securities and income from bonds or debentures, including pre-
miums and prizes attaching to such securities, bonds or deben-
tures. Penalty charges for late payment shall not be regarded as
interest for the purpose of this Article. However, the term “inter-
est” does not include income dealt with in Article 10.
(6) The provisions of paragraph 1 to 4 shall not apply if the
beneficial owner of the interest, being a resident of a Contract-
ing 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 inter-
est is paid is effectively connected with such permanent estab-
lishment. 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. Where, however, the
person paying the interest, whether he is a resident of a Con-
tracting State or not, has in a Contracting State 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.
(8) 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.