Latvia - 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 recipient is the beneficial owner of the interest the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

3.  Notwithstanding the provisions of paragraphs 1 and 2,

a.  interest arising in the Netherlands shall be exempt from Netherlands tax if the interest is paid to:

i  the State of Latvia, a political subdivision or a local authority thereof

ii  the Bank of Latvia (Central Bank)

iii  a. financial institution owned or controlled by the Government of Latvia, including political subdivisions and local authorities thereof;

b.  interest arising in Latvia shall be exempt from Latvian tax if the interest is paid to:

i  the State of the Netherlands, a political subdivision or a local authority thereof;

ii  the Nederlandsche Bank (Central Bank);

iii  a financial institution owned or controlled by the Government of the Netherlands, including political subdivisions and local authorities thereof;

c  interest arising in a Contracting State on a loan guaranteed or insured by any of the bodies mentioned or referred to in sub-paragraph a) or sub-paragraph b) and paid to a resident of the other Contracting State shall be taxable only in that other State;

d  interest arising in a Contracting State shall be taxable only in the other Contracting State if the recipient is a resident of that other State and such recipient is an enterprise of that other State and is the beneficial owner of the interest, and:

i  the interest is paid with respect to indebtedness arising on the sale on credit, by that enterprise, of any merchandise or industrial commercial or scientific equipment to an enterprise of the first-mentioned State, except where the sale or indebtedness is between related persons; or

ii  such interest is paid on any loan of whatever kind exceeding a duration of one year granted to an enterprise by a bank that is recognized as such under statutory provisions in that other State.

4.  The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of paragraphs 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, but 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 paragraphs 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 or fixed base. 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 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:

VIII. 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 three years after the end of the calendar year in which the tax has been levied.

IX. Ad Article 11

The provisions of sub-paragraph d) (ii) of paragraph 3 shall apply only for the first five years after this Convention takes effect. This period may be extended by mutual agreement between the competent authorities. The Contracting States shall notify each other of such agreement in writing through diplomatic channels.

X. Ad Articles 11 and 12

In case a Contracting State should introduce under its national law a withholding tax on interest or royalties, then, notwithstanding the provisions of paragraph 2 of Article 11 and of paragraph 2 of Article 12, during a period of five years after such introduction, no withholding tax shall be levied from interest or royalties, as the case may be, paid with respect to contracts concluded before the date of signature of this Convention.