Interest withholding tax cap limits source state taxation on cross border interest, subject to exemptions and PE connection. Article 11 permits residence state taxation of interest paid by a Contracting State but allows the source State to tax such interest subject to a capped ... Summary
Interest withholding tax cap limits source state taxation on cross border interest, subject to exemptions and PE connection.
Article 11 permits residence state taxation of interest paid by a Contracting State but allows the source State to tax such interest subject to a capped rate where the beneficial owner is resident in the other Contracting State. Exemptions apply to central banks, governments and agreed institutions. Interest is broadly defined; interest is deemed to arise where the payer is resident or where a permanent establishment or fixed base bears the indebtedness. If the beneficial owner's interest is effectively connected to a permanent establishment or fixed base, Articles 7 or 14 govern. Related party excess interest is limited to arm's length amounts for treaty purposes.
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