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 10 per
cent of the gross amount of the interest.
3. Notwithstanding the provisions of paragraph 2,
(a) interest arising in the Federal Republic of Germany, a Land, a
political subdivision or a local authority thereof and paid to
the Republic of Korea, the Bank of Korea, the Korea Export-
Import Bank, the Korea Development Bank and similar finan-
cial institutions as may be specified by mutual agreement
between the competent authorities of the Contracting States
as well as interest paid in consideration of a loan guaranteed
by the Korea Export Insurance Corporation shall be exempt
from German tax;
(b) interest arising in the Republic of Korea and paid to the Fed-
eral Republic of Germany, the Deutsche Bundesbank, the
Kreditanstalt für Wiederaufbau or the Deutsche Finanzie-
rungsgesellschaft für Beteiligungen in Entwicklungsländern
and similar financial institutions as may be specified by mutu-
al agreement between the competent authorities of the Con-
tracting States as well as interest paid in consideration of a
loan guaranteed by HERMES-Deckung shall be exempt from
Korean tax.
4. Notwithstanding the provisions of paragraph 2, interest as
defined 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
another 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
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” shall not include income dealt with in Article 10.
6. The provisions of paragraphs 1, 2 and 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 ser-
vices 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 that State itself, a Land, a political subdivision,
a local authority or 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 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 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 exceeds, for what-
ever reason, the amount which would have been agreed upon by
the payer and the beneficial owner in the absence of such rela-
tionship, the provisions of this Article shall apply only to the last-
mentioned amount. In such case, the excess part of the pay-
ments shall remain taxable according to the laws of each Con-
tracting State, due regard being had to the other provisions of
this Agreement.