(1) Interest arising in a Contracting State
and paid to a resident of the other Con-
tracting 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 a resident of the other Con-
tracting State is the beneficial owner of the
interest the tax so charged shall not exceed
10 per cent of the gross amount of the
interest.
(3) Notwithstanding the provisions of
paragraph 2, interest arising in a Contract-
ing State and paid to a resident of the other
Contracting State who is the beneficial
owner thereof shall be taxable only in that
other State to the extent that such interest:
a) is paid in connection with the sale on
credit of any equipment or merchandise
by the purchasing person to the selling
person, except where the sale is made
between associated persons;
b) is paid in respect of indebtedness of the
government of a Contracting State or of
a “Land”, or political subdivision or
local authority thereof;
c) is paid to the Canadian Export Devel-
opment Corporation or to the German
“Kreditanstalt für Wiederaufbau” or the
“Deutsche Gesellschaft für Wirtschaft-
liche Zusammenarbeit”;
d) is paid to the government of a Contract-
ing State or of a “Land”, or political
subdivision thereof, or to the central
bank of a Contracting State; or
e) is paid to a resident of the other State
which was constituted and is operated
exclusively to administer or provide
benefits under one or more pension,
retirement or other employee benefits
plans provided that:
aa) the resident is generally exempt
from income tax in the other State,
and
bb) the interest is not derived from car-
rying on a trade or a business or
from an associated person.
For the purpose of subparagraphs (a) and
(e), a person is associated with another
person if it is related to, or controlled or
managed by the other person or if both
persons are related to, or controlled by or
managed by a third person. For the pur-
pose of the preceding sentence, a person
is related to another person if more than 50
per cent of the voting shares belongs to the
other person, to persons with whom the
other person is associated, or to other per-
sons so associated with it.
(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 as well as income
which is subjected to the same taxation
treatment as income from money lent by
the laws of the State in which the income
arises. However, the term “interest” does
not include income dealt with in Article 10.
(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 Con-
tracting State in which the interest arises,
through a permanent establishment situ-
ated 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 resi-
dent of that State. Where, however, the
person paying the interest, whether the
payer 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 estab-
lishment 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 rela-
tionship between the payer and the benefi-
cial owner or between both of them and
some other person, the amount of the inter-
est, 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-men-
tioned 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.