Taxation of cross-border interest: source state may tax with capped withholding rates, exemptions and permanent establishment exceptions apply.

The treaty permits residence-state taxation of interest but allows the source State to tax interest paid to a beneficial owner subject to capped withholding rates; interest derived and beneficially owned by the Government, a political subdivision or a Central Bank of the other Contracting State is exempt. The Article broadly defines interest as income from debt-claims, excludes late-payment penalties, disapplies withholding limits where the beneficial owner's permanent establishment or fixed base is effectively connected with the debt, and limits treaty relief where related-party relationships inflate interest above arm's-length amounts.

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