United Kingdom - Interest

Article 11. Interest

1.  Interest arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State.

2.  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. The term shall not include any item which is treated as a dividend under the provisions of Article 10 of this Convention.

3.  The provisions of paragraph 1 of this Article 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 and the debtclaim in respect of which the interest is paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 of this Convention shall apply.

4.  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 exceeds, for whatever reason, 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.

5.  No relief shall be available under this Article if it was the main purpose or one of the main purposes of any person concerned with the assignment of the interest, or with the creation or assignment of the debtclaim in respect of which the interest is paid, or with the establishment, acquisition or maintenance of the company that is the beneficial owner of the interest and the conduct of its operations, to take advantage of this Article. In any case where a Contracting State intends to apply this paragraph, its competent authority shall in advance consult with the competent authority of the other Contracting State.

Protocol:

V. With reference to Articles 10 (Dividends) and 11 (Interest):

It is understood that an authorised representative of an investment fund established in a Contracting State may submit a claim relating to the benefits afforded by the provisions of these Articles. The competent authorities may consult together with a view to putting arrangements in place which facilitate claims and resolving any doubts concerning eligibility.

VI. With reference to Articles 10 (Dividends) and 13 (Capital Gains):

It is understood that income received in connection with the liquidation (in whole or in part) of a company or a purchase of own shares by a company is treated, for Netherlands tax purposes, as income from shares and not as capital gains.

VII. With reference to Articles 11 (Interest) and 12 (Royalties):

It is understood that no relief under these Articles shall be available where:

i.  interest or royalties, as the case may be, are paid to a company of the Netherlands;

ii.  that interest or those royalties are attributable to a permanent establishment of that company located in a third state with whom the Netherlands has a double taxation convention;

iii.  under that convention, the Netherlands eliminates double taxation by applying the exemption method with respect to such interest or royalties rather than allowing a deduction that would otherwise be granted under its domestic law; and

iv.  the tax levied in that third state is less than 60 per cent of the tax that would have been levied by the Netherlands had that interest or those royalties not been attributable to that permanent establishment.