Ethiopia - Interest

Article 11. Interest

1.   Interest arising in a Contracting State and paid to a resident of the 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 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 5 per cent of the gross amount of the interest.

3.   Notwithstanding the provisions of paragraph 2, interest arising in a Contracting State and paid to, or on loans guaranteed or insured directly or indirectly by, the Government, a local authority or the Central Bank of the other Contracting State shall be exempt from tax in the first-mentioned State.

4.   The competent authorities of the Contracting States may by mutual agreement settle the mode of application of paragraphs 1, 2 and 3.

5.   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.

6.   The provisions of paragraph 1, 2 and 3 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. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply.

7.   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 Contracting State in which the permanent establishment or fixed base is situated.

8.   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.

Protocol:

VI. Ad Articles 6, 10, 11, 12 and 13

1.   Income and gains from collective investment through closed funds for joint account based in a Contracting State (closed FJA’s) and umbrella funds consisting of several closed FJA’s, are allocated to the participants that invest through the closed FJA’s, in proportion to their participations in the fund.

2.   A closed FJA which is established in a Contracting State and which receives income or gains arising from the other Contracting State may itself, represented by its fund manager or its depository, in lieu of and instead of the participants in the closed FJA, claim the benefits of an agreement for the avoidance of double taxation, to which the other State is a party and which is specifically applicable to any of the investors concerned, on behalf of those participants in the closed FJA.

Such claims may be subject to enquiry and, where requested, a fund manager or depository shall provide relevant information which may include a schedule of participants and allocated income or gains relevant to a claim, as well as the particular agreements for the avoidance of double taxation under which an application for benefits is made by the FJA.

3.   Notwithstanding the provision of paragraph 2, a closed FJA may not claim treaty benefits on behalf of a participant in the closed FJA if the participant has itself made a claim for benefits in respect of the same income or gains.

XI. Ad Articles 10, 11 and 12

Where tax has been levied at source in excess of the amount of tax chargeable under the provisions of Articles 10, 11 or 12, applications for the refund of the excess amount of tax have to be lodged with the competent authority of the State having levied the tax, within a period of five years after the expiration of the calendar year in which the tax has been levied.