ARTICLE 11 — U.S. Income Tax Treaty

Interest

Interest arising in a Contracting State and derived by a resident of the other Contracting State may be taxed in that other State.
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:

a) 4.95 percent of the gross amount of the interest if the interest is beneficially owned by any financial institution (including an insurance company); and

b) 10 percent in all other cases.

Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State shall be exempt from tax in that State if:

a) the interest is paid by that State or a political subdivision or local authority thereof;

b) the beneficial owner of the interest is the other Contracting State or a political subdivision or local authority thereof or an instrumentality wholly owned by that other State; or

c) the beneficial owner of the interest is a resident of the other State and the interest is paid with respect to debt obligations that have been made, guaranteed or insured, directly or indirectly, by that other State or a wholly owned instrumentality thereof.

a) Notwithstanding the provisions of paragraph 2, interest paid by a resident of a Contracting State and that is determined with reference to receipts, sales, income, profits or other cash flow of the debtor or a related person, to any change in the value of any property of the debtor or a related person or to any dividend, partnership distribution or similar payment made by the debtor to a related person, and paid to a resident of the other State also may be taxed in the Contracting State in which it arises, and according to the laws of that State, but if the beneficial owner is a resident of the other Contracting State, the gross amount of the interest may be taxed at a rate not exceeding the rate prescribed in subparagraph b) of paragraph 2 of Article 10 (Dividends); and

b) notwithstanding the provisions of paragraphs 2 and 3, interest that is an excess inclusion with respect to a residual interest in a real estate mortgage investment conduit may be taxed by each State in accordance with its domestic law.

The term “interest” as used in this Convention 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 or prizes attaching to such securities, bonds, or debentures, as well as all other income that is treated as interest by the taxation law of the Contracting State in which the income arises. Income dealt with in Article 10 (Dividends) and penalty charges for late payment shall not be regarded as interest for the purposes of the Convention.
The provisions of paragraphs 1, 2, 3 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 services from a fixed base situated therein, and the interest is attributable to such permanent establishment or fixed base. In such case the provisions of Article 7 (Business Profits), or Article 14 (Independent Personal Services), as the case may be, shall apply.
For purposes of this Article, interest shall be deemed to arise in a Contracting State when the payer is that State itself or a political subdivision, local authority, or resident of that State. Where, however, the person paying the interest, whether a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base or derives profits that are taxable on a net basis in that State under paragraph 5 of Article 6 (Income From Immovable Property (Real Property)) or paragraph 1 of Article 13 (Gains), and such interest is borne by such permanent establishment or fixed base or allocable to such profits then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated or from which such profits are derived.
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 the Convention.