(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:
a) 5 per cent of the gross amount of the interest from loans
granted by a bank;
b) 10 per cent of the gross amount of the interest in all other
cases.
The competent authorities of the Contracting States shall by
mutual agreement settle the mode of application of these
limitations.
(3) Notwithstanding the provisions of paragraph 2, interest
referred to in paragraph 1 shall be taxable only in the Contracting
State in which the beneficial owner is a resident if:
a) the beneficial owner is a Contracting State, the Banco de
México or the Deutsche Bundesbank;
b) the interest is paid by any of the entities mentioned in sub-
paragraph a);
c) the interest arises in the Federal Republic of Germany and is
paid in respect of a loan granted, guaranteed or insured by
Banco de México, Banco Nacional de Comercio Exterior,
S.N.C., Nacional Financiera, S.N.C., or Banco Nacional de
Obras y Servicios Públicos, S.N.C., or by any other
institution, as may be agreed from time to time between the
competent authorities of the Contracting States;
d) the interest arises in the United Mexican States and is paid in
respect of a loan granted, guaranteed or insured by the
Federal Republic of Germany or is paid to the Kreditanstalt
für Wiederaufbau or the Deutsche Investitions- und
Entwicklungsgesellschaft, or by any other institution, as may
be agreed from time to time between the competent
authorities of the Contracting States.
(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 all other income that is treated as income from money lent by
the laws of the Contracting 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, 2 and 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
Contracting 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 a
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.