Interest articles in double tax treaties
Produced in partnership with David Klass of Hunton Andrews Kurth
Interest articles in double tax treaties

The following Tax guidance note Produced in partnership with David Klass of Hunton Andrews Kurth provides comprehensive and up to date legal information covering:

  • Interest articles in double tax treaties
  • Beneficial ownership and anti-avoidance
  • Meaning of interest
  • Model convention tax treatment of interest payments
  • Variations on the model convention
  • EU Interest and Royalties Directive
  • Practical application of article 11

Brexit: As of exit day (31 January 2020) the UK is no longer an EU Member State. However, in accordance with the Withdrawal Agreement, the UK has entered an implementation period, during which it continues to be subject to EU law. This has an impact on this Practice Note. For further guidance, see Practice Note: Brexit—UK tax consequences.

Article 11 of the OECD model convention is concerned with the taxation of interest paid cross border. In particular, it deals with the allocation of taxing rights between:

  1. the state of residence of the person receiving payment, which will be referred to as the recipient state, and

  2. the state of residence of the person making the payment, which will be referred to as the source state

This Practice Note considers:

  1. the meaning of interest in a double tax treaty or convention (DTT) context

  2. the OECD model convention approach to the taxation of interest

  3. variations on this approach in DTTs

  4. the interaction between the DTT approach and the EU Interest and Royalties Directive, and

  5. the practical contexts in which an assessment of this article will arise

Other types of passive income, which are dealt with in similar ways by DTTs, are explained in Practice Notes:

  1. Dividend articles in double tax treaties

  2. Royalties articles in double tax treaties

Beneficial ownership and anti-avoidance

Some of the benefits