7 DE SETEMBRO DE 1995

1005

ing State relating to the determination of the tax liability of a person, provided that the determination of that tax liability is consistent with the principles stated in this article.

Article 10 Dividends

1 — Dividends paid by a company that is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other Sate.

2 — However, such dividends may also be taxed in the Contrating State of which the company paying the dividends is a resident, and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other Contracting State, the tax so charged shall not exceed 15 percent of the gross amount of the dividends. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. This paragraph shall not affect the taxation of die company in respect of the profits out of which the dividends are paid.

3 — Notwithstanding the provisions of paragraph 2, if the beneficial owner is a company that is a resident of the other Contracting State and that, for an uninterrupted period of 2 years prior to the payment of the dividend, owns directly at least 25 percent of the capital (capital social) of the company paying the dividends, the tax so charged shall not exceed:

a) With respect to dividends paid after December 31, 1996, and before January 1, 2000, 10 percent of the gross amount of such dividends; and

b) With respect to dividends paid after December 31, 1999, the rate that Portugal may apply to such dividends paid to residents of European Union member states, provided, however, that the applicable rate shall not be less than 5 percent.

4 — Paragraph 3 shall not apply in the case of dividends paid by a United States regulated investment company or a real estate investment trust. In the case of dividends from a regulated investment company, paragraph 2 shall apply. In the case of dividends from a real estate investment trust, paragraph 2 shall apply if the beneficial owner of the dividends is an individual holding a less than 25 percent interest in the real estate investment trust; otherwise, the rate of withholding applicable under domestic law shall apply.

5 — The term «dividends» as used in this article means income from shares, «jouissance» shares, founders' shares, or other rights, not being debt-claims, participating in profits, as well as income from other corporated rights that is subjected to me same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident. The term «dividends» also includes income from arrangements, including debt obligations, carrying the right to participate in profits, to the extent so characterized under the law of die Contracting State in which die income arises. In the case of Portugal, the term also includes profits attributed under an arrangement for participation in profits (associação em participação).

6— The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the dividends, being a resident of a Contracting State, carries on or has carried on business in the other Contracting State, of which the company paying the dividends is a resident, through a permanent establishment situated therein, or performs or has performed in that other State independent personal services from

a fixed base situated therein, and the holding in respect of which die dividends are paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of article 7, «Business profits», or article 15, independent personal services», as the case may be, shall apply.

7 — Where a company that is a resident of a Contracting State derives profits or income from the other Contracting State, that other State may not impose any tax on the dividends paid by the company, except insofar as such dividends are paid to a resident of that other State or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in that other State.

Article II ■ ■ Interest

1 —Interest arising in a Contracting State and derived by a resident of die other Contracting State may be taxed in that other State.

2 — However, such interest may also be taxed in the Contracting State in which it arises, and acording to the laws of that State, but if the beneficial owner of the interest is a resident of the other Contracting State the tax so charged shall not exceed 10 percent of the gross amount of such interest

The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation.

3 — Notwithstanding die provisions of paragraph 2, interest arising in one of the Contracting States and beneficially owne by a resident of the other Contracting State shall be exempt from tax in the first-mentioned State, provided that:

a) The debtor of such interest is the Government of that Contracting State, a political or administrative subdivision thereof, or any of its local authorities; or

b) The interest is paid to the Government of the other Contracting State, to a political or administrative subdivision thereof, or to any of its local authorities, or to an institution or organization (including financial institutions) wholly owned by them; or

c) It is interest on a long-term loan (5 or more years) granted by a bank or other financial institution that is a resident of the other Contracting State.

4 — Notwithstanding the provisions of paragraphs 2 and 3, interest arising in one of the Contracting States that is determined by reference to the profits of the issuer or of one of its associated enterprises and that is beneficially owned by a resident'of the other Contracting State may be taxed in the State in which it arises, and according to the laws of that State, but the tax so charged shall not exceed the rate prescribed in paragraph 2 of article 10, «Dividends».

5 —The term «interest» as used in this Convention means income from debt-claims of every kind, whether or not secured by mortgage, and, subject to paragraph 5 of article 10, «Dividends», whether or not carrying a right to participate in die debtor's profits, and in particular, income from government securities, and income from bonds or debentures, including premiums or prizes attaching to such securities, bonds, or debentures, as well as all other income assimilated to income from money lent by the taxation law of the State in which the income arises.