LESSON 3 - PART 2 - ARTICLE 11 - INTEREST

The OECD Model provides that interest income arising in a Contracting sate and paid to a resident of another Contracting State is taxable in that other State. The income may also be taxed in the state in which it arose, however the tax so charged shall not exceed 10% of the gross amount of the interest. Interest is defined as “debt-claims” of every kind whatever, but excludes penalty charges for late payment. The Canada-Mexico Treaty also imposes a 10% withholding tax. The article on interest is different in the Canada-US Protocol.

Each Treaty, also exempts certain interest payments from withholding tax. (e.g. where the interest is beneficially owned by the government of a Contracting State).

The interest article does not apply if the beneficial owner of the interest has a PE (or FB)in the Contracting State and the debt-claim is effectively connected to that PE (or FB).