Interest taxation limits and exemptions: source taxing rights with a capped rate and PE connection determining treatment.

The Article allocates interest taxation between residence and source states: residence may tax interest paid to its residents, while the source State may tax interest arising there subject to a capped rate when the beneficial owner is resident of the other Contracting State. Exemptions apply for governments, sub-national authorities and specified central and export-import banks or institutions agreed by competent authorities. Interest is broadly defined as income from debt-claims; penalties for late payment are excluded. Interest is sourced to the payer's State unless a permanent establishment or fixed base bears the indebtedness. Related-party excess interest is limited to arm's-length amounts, with excess taxable under domestic law.

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