- (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 recipient is the beneficial owner of the interest the tax so charged shall not exceed 10 per cent of the gross amount of the interest.
- (3) Notwithstanding the provisions of paragraph (2) of this Article, the interest referred to in paragraph (1) of this Article shall be taxable only in the Contracting State of which the person who receives the interest is a resident, if that person is the beneficial owner of the interest and it is paid:
- (a) in connection with the sale on credit of industrial, commercial or scientific equipment; or
- (b) in connection with the sale on credit of goods delivered by one enterprise to another enterprise.
- (4) Notwithstanding the provisions of paragraph (2) of this Article, the interest referred to in paragraph (1) of this Article shall be taxable only in the Contracting State of which the person who receives the interest is a resident, if that person is the beneficial owner of the interest and:
- (a) the payer of the interest is the first Contracting State referred to in paragraph (1) of this Article or one of its political or administrative subdivisions or local authorities (in the case of Italy) or one of its local authorities or agencies or instrumentalities of the Government or a local authority (in the case of the United Kingdom); or
- (b) the interest is paid in consideration of a loan made, guaranteed or insured by the second Contracting State referred to in paragraph (1) of this Article (‘the second Contracting State’), including the Export Credits Insurance Company (Societá di Assicurazione ai Crediti per l’Esportazione), or one of its political or administrative subdivisions or local authorities (in the case of Italy) or one of its local authorities or by the United Kingdom Export Credits Guarantee Department (in the case of the United Kingdom) or a public establishment of the second Contracting State.
- (5) The term ‘interest’ as used in this Article means income from Government securities, bonds or debentures, whether or not secured by mortgage and whether or not carrying a right to participate in profits, and debt-claims of every kind as well as all other income assimilated to income from money lent by the taxation law of the State in which the income arises, but does not include income dealt with in Article 10 of this Convention.
- (6) The provisions of paragraphs (1), (2), (3) or (4), as the case may be, of this Article 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 a case the interest is taxable in that other Contracting State according to its own law.
- (7) Interest shall be deemed to arise in a Contracting State when the payer is that State itself, a political or administrative subdivision, a local authority or 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 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 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 a 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.
- (9) The provisions of this Article shall not apply if the debt-claim in respect of which the interest is paid was created or assigned mainly for the purpose of taking advantage of this Article and not for bona fide commercial reasons.
- (10) The reliefs from tax provided for in paragraphs (2), (3) or (4), as the case may be, of this Article shall not apply if the beneficial owner of the interest is exempt from tax on such income in the Contracting State of which he is a resident and such recipient sells or makes a contract to sell the holding from which such interest is derived within three months of the date such recipient acquired such holding.