Taxation of cross-border interest: source state may tax interest but a capped rate and targeted exemptions apply.

Article 12 permits residence-state taxation of interest and allows source-state taxation subject to a capped charge; it provides institutional exemptions for interest paid to certain public financial bodies and exempts interest on loans guaranteed by those bodies. Interest is broadly defined as income from debt-claims and is deemed to arise where the payer or the payer's permanent establishment or fixed base bearing the indebtedness is situated. Nexus and anti-abuse rules require application of business profits or independent personal services provisions where the interest is effectively connected to a permanent establishment or fixed base, and treaty relief is limited to arm's-length interest where special relationships inflate payments.

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