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HMRC internal manual

Double Taxation Relief Manual

From
HM Revenue & Customs
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DT: Philippines: double taxation agreement, Article 10: Interest

(1) Interest arising in a Contracting State which is derived and beneficially owned bya 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 law of that State, but the tax so charged shall not exceed 15 percent of the gross amount of the interest.

(3) Notwithstanding the provisions of paragraph (2) of this Article, the tax charged inthe Contracting State in which the interest arises shall not exceed 10 per cent of thegross amount of the interest if the interest is paid by a company in respect of the publicissue of bonds, debentures or similar obligations.

(4) Notwithstanding the provisions of paragraphs (2) and (3) of this Article interestarising in a Contracting State shall be exempt from tax in that State if it is derived andbeneficially owned by:

  1. the Government of the other Contracting State, a political subdivision or local authority thereof or an instrumentality of that other State; or

  2. a resident of the other Contracting State in respect of a loan made, guaranteed or insured by such instrumentality of that other State as is specified and agreed in letters exchanged between the competent authorities of the Contracting States.

The term `instrumentality` as used in this paragraph means any agency or entity created or organised by either Contracting Government in order to carry out governmental functions.

(5) The term `interest` as used in this Article means income from Governmentsecurities, bonds or debentures, including premiums and prizes attaching to suchsecurities, whether or not secured by mortgage and whether or not carrying a right toparticipate in profits, and other debt-claims of every kind as well as all other incomeassimilated to income from money lent by the taxation law of the State in which the incomearises. Penalty charges for late payment shall not be regarded as interest for the purposeof this Article.

(6) The provisions of paragraphs (1), (2) and (3) of this Article shall not apply if thebeneficial owner of the interest, being a resident of a Contracting State, carries on atrade or business in the other Contracting State in which the interest arises, through apermanent establishment situated therein, or performs in that other State professionalservices from a fixed base situated therein, and the debt-claim in respect of which theinterest is paid is effectively connected with such permanent establishment or fixed base.In such a case, the provisions of Article 7 or 13, as the case may be, shall apply.

(7) Interest shall be deemed to arise in a Contracting State when the payer is that Stateitself, a political subdivision, a local authority or a resident of that State. Where,however, the person paying the interest, whether he is a resident of a Contracting Stateor not, has in a Contracting State a permanent establishment or a fixed base in connectionwith which the indebtedness on which the interest is paid was incurred, and that interestis borne by that permanent establishment or fixed base, then such interest shall be deemedto arise in the Contracting State in which the permanent establishment or fixed base issituated.

(8) Where, owing to a special relationship between the payer and the beneficial owner orbetween both of them and some other person, the amount of the interest paid, having regardto the debt-claim for which it is paid, exceeds the amount which would have been agreedupon by the payer and the beneficial owner in the absence of such relationship, theprovisions of this Article shall apply only to the last-mentioned amount. In that case,the excess part of the payments shall remain taxable according to the law of eachContracting State, due regard being had to the other provisions of this Convention.