Taxation of interest: source taxation subject to a withholding cap, with exemptions and permanent establishment exceptions.

Taxation of cross border interest allows residence state taxation of the beneficial owner while the source State may tax subject to a withholding limitation; governments and central banks are exempt. The limitation is inapplicable to interest effectively connected with a permanent establishment or fixed base, in which case business profits or independent personal services rules apply. Interest is deemed to arise where the payer is resident unless borne by a permanent establishment or fixed base in another State. Related party pricing adjustments limit treaty relief to the arm's length amount, leaving any excess taxable under domestic law.

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