2. 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 beneficial owner of the interest

is a resident of the other Contracting State,the tax so charged shall not exceed 10 per

cent of the gross amount of the interest.

The competent authorities of the Contracting States shall by mutual agreement settle the

mode of application of this limitation.

3. Notwithstanding the provisions of paragraph 2, interest arising in a Contracting

State, derived and beneficially owned by the Government of the other Contracting State,

including its political or administrative subdivisions and local authorities, the Central

Bank of Portugal and the Central Bank of Barbados, or any agency thereof, shall be

exempt from tax in the first-mentioned Contracting State.

4. The term “interest” as used in this Article means income from debt-claims of every kind, whether or not secured by mortgage and 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. Penalty charges for late payment shall not be regarded

as interest for the purpose of this Article.

5. The provisions of paragraphs 1 and 2 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 a case

the provisions of Article 7 or Article 14, as the case may be, shall apply.

6. Interest shall be deemed to arise in a Contracting State when the payer is 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.

7. 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,

having regard to the debt-claim for which it is paid, exceeds 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. 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.

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