Interest taxation: source state may tax interest but withholding is limited; PE connection shifts taxation to business profits.

The Agreement permits taxation of interest by the beneficiary's resident State while allowing the source State to tax such interest under its law, limited by a withholding cap on gross interest. Interest includes government securities, bonds, debentures and other indebtedness; exclusions elsewhere in the Agreement apply. If the beneficial owner has a permanent establishment or fixed base and the indebtedness is effectively connected, taxation follows business profits or independent services rules. Interest is sourced to the payer or the payer's permanent establishment when the indebtedness is borne there. Special-relationship adjustments restrict treaty relief to an arm's-length interest amount, with excess taxable under domestic law.

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