Taxation of Interest permits source or residence taxation with limited source withholding and exemptions for state entities.

Interest arising in one Contracting State and paid to a resident of the other may be taxed in the residence State and also in the source State subject to a withholding limitation when the beneficial owner is resident in the other State; competent authorities shall settle application. Exemptions apply where the debtor or recipient is a State, subdivision, local authority or institution in intergovernmental financing. The limitation does not apply to interest effectively connected with a permanent establishment or fixed base, and deemed source and arm's length adjustment rules determine sourcing and taxability.

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