Article 12 - Interest - France

ARTICLE 12 INTEREST 1. Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State. 2 [ 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 paragraph 2: (a) interest arising in a Contracting State shall be exempt from tax in that Contracting State provided it is derived and beneficially owned by: (i) the Government, a political sub-division or local authority of the other Contracting State; or 3 [ (ii) the Reserve Bank of India in the case of India and the Banque de France and Agence Francaise de Developpement in the case of France; or ] (iii) any other institution as may be agreed from time to time between the competent authorities of the Contracting States; (b) interest arising in a Contracting State shall be exempt from tax in that Contracting State if it is beneficially owned by a resident of the other Contracting State and is derived in connection with a loan or credit extended or endorsed by: (i) in the case of France, the Banque Francaise du Commerce Exteriur, or the Compagnie Francaise d'Assurance pour le Commerce Exterieur (COFACE) ; (ii) in the case of India, the Export-Import Bank of India; (iii) any institution of the other Contracting State in charge of the public financing of external trade. 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 Contracting 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 15, as the case may be, shall apply. 6. Interest shall be deemed to arise in a Contracting State when the payer is that Contracting State itself, a political subdivision, a local authority or a resident of that Contracting 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. 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 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. ************** NOTES:- 1 . Substituted vide Notification No. 650(E) dated 10-07-2000 w.e.f. 01-04-1995 2 . Substituted vide Notification No. 650(E) dated 10-07-2000 w.e.f. 01-04-1997 before it was read as, 1 [ 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 - (a) 10 per cent of the gross amount of the interest on loans made or guaranteed by a bank or other financial institution carrying on bona fide banking or financial business or an insurance company or by an enterprise which holds directly or indirectly at least 10 per cent of the capital of the company paying interest; (b) 15 per cent of the gross amount of the interest in all other cases. ] 3 . Substituted vide Notification No. S.O. 2106 (E) dated 12-08-2009