Interest taxation: cross-border interest subject to source and residence taxation with limited source withholding and specified exemptions.

Interest paid between residents is taxable in the recipient's State; the source State may tax it but must limit source withholding when the beneficial owner resides in the other State. Exemptions apply where interest is beneficially owned by the other State's government, central bank, or mutually agreed governmental financial institutions. Interest connected with a permanent establishment or fixed base is taxed under business or independent services provisions, and amounts inflated by special relationships are limited to arm's-length amounts for treaty application.

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