(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 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
3 per cent of the gross amount of the interest.
(3) Notwithstanding the provisions of paragraph 2,
a) interest arising in Romania and paid to the Government of the
Federal Republic of Germany, the Deutsche Bundesbank, the
Kreditanstalt für Wiederaufbau or the Deutsche Investitions-
und Entwicklungsgesellschaft (DEG) and interest paid in con-
sideration of a loan guaranteed by HERMES-Deckung shall
be exempt from Romanian tax;
b) interest arising in the Federal Republic of Germany and paid
to the Government of Romania shall be exempt from German
tax if it is derived and beneficially owned by the Government
of Romania, an administrative-territorial unit or a local author-
ity thereof or any agency or bank unit or institution of the
Government of Romania, an administrative-territorial unit or a
local authority or if the debt-claims of a resident of Romania
are warranted, insured or financed by a financial institution
wholly owned by the Government of Romania.
(4) Notwithstanding the provisions of paragraph 2, if and as
long as the Federal Republic of Germany, under its domestic
legislation, levies no withholding tax on interest paid to a resident
of Romania, the percentage provided for in paragraph 2 shall be
reduced to 0 per cent.
(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 in particular, income from government securities and
income from bonds or debentures, including premiums and
prizes attaching to such securities, bonds or debentures. Penal-
ty charges for late payment shall not be regarded as interest 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
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, 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 Convention.