Interest arising in a Contracting State and paid to a resident
of the other Contracting State may be taxed in that other State.
However, such interest may also be taxed in the Contracting
State in which it arises and according to the laws of that State,
but if the recipient is the beneficial owner of the interest the
tax so charged shall not exceed 10 per cent of the gross amount of
the interest.
Notwithstanding the provisions of paragraph 2 interest arising
in a Contracting State and paid to a resident of the other
Contracting State shall be taxable only in that other State if such
a resident is the beneficial owner of the interest and:
the payer or the recipient of the interest is the Government of
a Contracting State, a political subdivision or a local authority
thereof or an agency or instrumentality of that Government,
political subdivision or local authority; or
the interest is paid in respect of a loan made, guaranteed or
insured, or any other debt-claim or credit guaranteed or insured by
the United Kingdom Export Credits Guarantee Department or by any
organisation established in either Contracting State after the date
of signature of this Convention and which is of a similar nature
(the competent authorities of the Contracting States shall by
mutual agreement determine whether such organisations are of a
similar nature);
or
the interest is paid in respect of a loan made, guaranteed or
insured by the Bank of England or the Bank of Estonia.
The term 'interest' as used in this Article means income from
debt-claims of every kind, whether or not secured by mortgage, and
in the case of the United Kingdom whether or not carrying a right
to participate in the debtor's profits, and in particular, income
from government securities and income from bonds or debentures,
including premiums and prizes attaching to such securities, bonds
or debentures. In the case of Estonia penalty charges for late
payment shall not be regarded as interest for the purpose of this
Article. The term interest shall not include any item which is
treated as a distribution under the provisions of Article 10 of
this Convention.
The provisions of paragraphs 1 and 2 of this Article shall not
apply if the beneficial owner of the interest, being a resident of
a Contracting State, carries on business in the other Contracting
State in which the interest arises, 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 case the provisions of Article 7 or Article 14 of
this Convention, as the case may be, shall apply.
Interest shall be deemed to arise in a Contacting State when
the payer is that State itself, a political subdivision, a local
authority or a resident of that State. Where, however, the person
paying the interest, whether he is a resident of a Contracting
State or not, has in a Contracting State a permanent establishment
or a fixed base in connection with which the indebtedness on which
the interest is paid was incurred, and such interest is borne by
such permanent establishment or fixed base, then such interest
shall be deemed to arise in the State in which the permanent
establishment or fixed base is situated.
Where by reason of a special relationship between the payer and
the beneficial owner 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 agreed upon by the payer and the
beneficial owner in the absence of such relationship, the
provisions of this Article shall apply only to the last-mentioned
amount of interest. In such case, the excess part of the payments
shall remain taxable according to the laws of each Contracting
State, due regard being had to the other provisions of this
Convention.
Any provisions in the laws of either Contracting State relating
only to interest paid to a non-resident company shall not operate
so as to require such interest paid to a company which is a
resident of the other Contracting State to be treated as a
distribution or dividend by the company paying such interest. The
preceding sentence shall not apply to interest paid to a company
which is a resident of one of the Contracting States 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.
The provisions of this Article shall not apply if it was the
main purpose or one of the main purposes of any person concerned
with the creation or assignment of the debt-claim in respect of
which the interest is paid to take advantage of this Article by
means of that creation or assignment.
