Interest taxation allows source-state withholding with capped rate; exemptions apply for public entities and PE-connected interest. Interest may be taxed in the recipient's residence, but the source State may also tax it subject to a withholding limitation when the beneficial owner is resident in the other Contracting State. Exemptions apply for the other State, its political subdivisions, central bank and certain public financial institutions, and for approved transactions by other residents. Interest is broadly defined as income from debt claims; penalty charges are excluded. Where the beneficial owner has a permanent establishment or fixed base to which the debt is effectively connected, business or service taxation rules apply, and a deeming rule allocates source to the payer's residence or the permanent establishment's State.