Replaced by new DTA, which applies in UK from 1st April 2003 for
CT, 6th April 2003 for IT and 1st January 2004 for PRT. For US
withholding taxes it applies from 1st May 2003 and for other US
taxes from 1st January 2004. See DT19939A.
(1) Interest derived and beneficially owned by a resident of
the United Kingdom shall be exempt from tax by the United States.
(2) Interest derived and beneficially owned by a resident of
the United States shall be exempt from tax by the United Kingdom.
(3) The term `interest` as used in this Article means income
from Government securities, bonds or debentures, whether or not
secured by mortgage and whether or not carrying a right to
participate in profits, and other debt claims of every kind as well
as all other income assimilated to income from money lent by the
taxation law of the State in which the income arises but, subject
to the provisions of paragraph (7) of this Article, shall not
include any income which is treated as a distribution under the
provisions of Article 10 (Dividends). Penalty charges for late
payment shall not be regarded as interest for the purposes of this
Article.
(4) The provisions of paragraphs (1) and (2) shall not apply
if the person deriving the interest, being a resident of a
Contracting State, carries on business in the other Contracting
State through a permanent establishment situated therein, or
performs in that other State independent personal services from a
fixed base situated therein, and the debt claim in respect of which
the interest is paid is effectively connected with such permanent
establishment or fixed base. In such a case, the provisions of
Articles 7 (Business profits), 14 (Independent personal services),
or 17 (Artistes and athletes), as the case may be, shall apply.
(5) Where, owing to a special relationship between the payer
and the person deriving the interest or between both of them and
some other person, the amount of the interest paid exceeds for
whatever reason the amount which would have been paid in the
absence of such relationship, the provisions of this Article shall
apply only to the last-mentioned amount. In that case, the excess
part of the payments shall remain taxable according to the law of
each Contracting State, due regard being had to the other
provisions of this Convention.
(6) Whether or not a resident of a Contracting State derives
profits or income from the other Contracting State, the other State
may not impose any tax on the interest paid by that resident,
except insofar as such interest is paid to a resident of that other
State (and where that other State is the United States, to a
national of the United States) or insofar as the debt claim in
respect of which the interest is paid is effectively connected with
a permanent establishment or a fixed base of the person deriving
interest situated in that other State.
(7) Any provision in the law of either Contracting State
relating only to interest paid to a non- resident corporation shall
not operate so as to require such interest paid to a resident of
the other Contracting State to be treated as a distribution by the
corporation paying such interest. The preceding sentence shall not
apply to interest paid to a corporation of one Contracting State in
which more than 50 per cent of the voting power is controlled,
directly or indirectly, by a person or persons who are residents of
the other Contracting State.
(8) The provisions of paragraph (2) of this Article shall
not apply if the recipient of the interest is exempt from tax on
such income in the United States and such recipient sells or makes
a contract to sell the holding from which such interest is derived
within three months of the date such recipient acquired such
holding.
