2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the beneficial owner of such income, 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 right or property in respect of which the income is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply. 3. Notwithstanding the provisions of paragraphs 1 and 2, items of income of a resi-dent of a Contracting State not dealt with in the foregoing Articles of this Convention and arising in the other Contracting State may also be taxed in that other State.

CHAPTER IV METHODS FOR ELIMINATION OF DOUBLE TAXATION

ARTICLE 22

ELIMINATION OF DOUBLE TAXATION 1. In the case of Portugal double taxation shall be eliminated as follows: a) Where a resident of Portugal derives income which, in accordance with the

provisions of this Convention, may be taxed in Peru, Portugal shall allow as a deduction from the tax on the income of that resident an amount equal to the income tax paid in Peru. Such deduction shall not, however, exceed that part of the income tax as computed before the deduction is given, which is attributable to the income which may be taxed in Peru;

b) Notwithstanding the provision of subparagraph a) of paragraph 1 of this

Article, where a company which is a resident of Portugal receives divi-dends from a company which is a resident of Peru and which is subject to and not exempt from Peruvian tax, Portugal shall allow a deduction for such dividends included in the tax base of the company receiving the divi-dends, provided that the latter company holds directly a participation cor-responding to at least 25 per cent of the capital of the company paying the dividends for an uninterrupted period of two years prior to the date on which the dividends are paid or, if held for a shorter period, if it continues to hold that participation until the two-year-long condition is satisfied. The provisions of this subparagraph shall only apply if the profits out of which such dividends are paid:

(i) have been effectively taxed at a rate of 10 per cent or higher; and (ii) do not result from activities which generate passive income, namely

royalties, capital gains and other income derived from securities, in-come from immovable property not situated in the Contracting State

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