Italy (tax/treaty)

INCOME FROM DEBT-CLAIMS 1. Income from debt-claims 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 income from debt-claims may also be taxed in the Contracting State in which it arises, and according to the law of that State, but if the recipient is the beneficial owner of the income from debt-claims, the tax so charged shall not exceed 5 per cent of the gross amount of the income from debt-claims. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. 3. Notwithstanding the provisions of paragraph 2, income from debt-claims arising in a Contracting State shall be exempt from tax in that State if: a. the payer of the income from debt-claims is the Government of that Contracting State or a local authority thereof; or b. the income from debt-claims is paid to the Government of the other Contracting State or local authority thereof or any agency or instrumentality (including a financial institution) wholly owned by that other Contracting State or local authority thereof; or c. the income from debt-claims is paid to any other agency or instrumentality (including a financial institution) in relation to loans made in application of an agreement concluded between the Governments of the Contracting States. 4. The term "income from debt-claims" as used in this Article means income from Government securities, bonds or debentures, including premiums and prizes attaching to such securities, bond or debentures, whether or not secured by mortgage and whether or not carrying a right to participate in the debtor's profits, and debt-claims of every kind as well as all other income assimilated to income from money lent by the taxation law of the State in which the income arises. 5. The provisions of paragraphs from 1 to 3 shall not apply if the beneficial owner of the income from debt-claims, being a resident of a Contracting State, carries on business in the other Contracting State, in which the income from debt-claims 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 income from debt-claims is paid is effectively connected with such permanent establishment or fixed base. In such a case, the income from debt-claims is taxable in that other Contracting State according to its own law. (Art. 11 contd.) 6. Income from debt-claims shall be deemed to arise in a Contracting State when the payer is that State itself, a political or administrative subdivision, a local authority or a resident of that State. Where, however, the person paying the income from debt-claims, 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 income from debt-claims is paid was incurred, and such income from debt-claims is borne by such permanent establishment or fixed base, then such income from debt-claims 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 income from debt-claims, 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 law of each Contracting State, due regard being had to the other provisions of this Convention.