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- 1. Interest arising in a Contracting Party and paid to a resident of the other Contracting Party may be taxed in that other Party.
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- 2. However, such interest may also be taxed in the Contracting Party in which it arises and according to the laws of that Party, but if the beneficial owner of the interest is a resident of the other Contracting Party and at least one of the conditions mentioned in paragraph 3 of this Article is met, that interest shall be taxable only in that other Party.
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- 3. The conditions referred to in paragraph 2 of this Article are that:
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- (a) the interest is beneficially owned by:
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- (i) that other Party itself, a political subdivision or local authority thereof including, in the case of the Hong Kong Special Administrative Region, the Hong Kong Monetary Authority;
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- (ii) an individual;
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- (iii) a company whose principal class of shares is regularly traded on a recognised stock exchange;
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- (iv) a pension scheme;
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- (v) a financial institution which is unrelated to and dealing wholly independently with the payer (the term ‘financial institution’ here means a bank or other enterprise substantially deriving its profits by raising debt finance in the financial markets or by taking deposits at interest and using those funds in carrying on a business of providing finance); or
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- (vi) a company other than a company mentioned under sub-paragraphs (iii), (iv) or (v) provided that the competent authority of the Contracting Party which has to grant the benefits determines that the establishment, acquisition or maintenance of the company does not have as its main purpose or one of its main purposes to secure the benefits of this Article;
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- (b) the interest is paid:
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- (i) by a Contracting Party, a political subdivision or local authority thereof including, in the case of the Hong Kong Special Administrative Region, the Hong Kong Monetary Authority;
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- (ii) by a bank in the ordinary course of its banking business; or
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- (iii) on a quoted Eurobond.
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- 4. The term ‘interest’ as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage 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 premiums and prizes attaching to such securities, bonds or debentures. The term shall not include penalty charges for late payment nor any item treated as a dividend under the provisions of paragraph 3 of Article 10.
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- 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the interest, being a resident of a Contracting Party, carries on business in the other Contracting Party in which the interest arises through a permanent establishment situated therein and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.
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- 6. 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 paid exceeds, for whatever reason, 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 Party, due regard being had to the other provisions of this Agreement.
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- 7. [REPLACED by paragraph 1 of Article 7 of the MLI] (Refer to the box following Article 25 of the Agreement) [No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment].