(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
10 percent of the gross amount of the interest.
(3) Notwithstanding the provisions of paragraph 2,
(a) interest arising in the Federal Republic of Germany and paid
to the Philippine Government and the Bangko Sentral Ng
Pilipinas shall be exempt from German tax;
(b) interest arising in the Philippines and paid in consideration of
a loan guaranteed by the Federal Republic of Germany in re-
spect of export or foreign direct investment or paid to the
Government of the Federal Republic of Germany, the
Deutsche Bundesbank, the Kreditanstalt für Wiederaufbau or
the DEG – Deutsche Investitions-und Entwicklungsge-
sellschaft mbH shall be exempt from Philippine tax.
(4) Notwithstanding the provisions of paragraph 2, interest as
referred to in paragraph 1 may be taxed only in the Contracting
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 commercial or scientific equip-
ment on credit or
(b) in connection with the sale of goods by an enterprise to an-
other enterprise on credit.
(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 secu-
rities 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 inter-
est for the purpose of this Article.
(6) The provisions of paragraphs 1 to 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, 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.
(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 es-
tablishment or a fixed base in connection with which the indebt-
edness 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.
(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 ac-
cording to the laws of each Contracting State, due regard being
had to the other provisions of this Agreement.