The Double Taxation Relief (Taxes on Income) (Mexico) Order 1994

ARTICLE 11 Interest

(1) Interest 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 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) 5 per cent of the gross amount of the interest where:

(i) the beneficial owner is a bank or an insurance company; or

(ii) the interest is derived from bonds and securities that are regularly and substantially traded on a recognised securities market;

(b) 10 per cent of the gross amount of the interest if the beneficial owner is not a bank or an insurance company and the interest is:

(i) paid by a bank; or

(ii) paid by the purchaser of machinery and equipment to a beneficial owner that is the seller of such machinery and equipment in connection with a sale on credit; and

(c) 15 per cent of the gross amount of the interest in all other cases.

(3) Notwithstanding the provisions of paragraph (2), during a period of three years from the date on which the provisions of this Article have effect:

(a) the rate of 10 per cent shall apply in place of the rate provided in sub-paragraph (a) of paragraph (2); and

(b) the rate of 15 per cent shall apply in place of the rate provided in sub-paragraph (b) of paragraph (2).

(4) Notwithstanding the provisions of paragraphs (2) and (3), interest referred to in paragraph (1) shall be taxable only in the Contracting State of which the beneficiary is a resident where:

(a) that person is a Contracting State, a political subdivision, a local authority, the Banco de Mexico or the Bank of England;

(b) the interest is paid by any of the entities mentioned in sub-paragraph (a);

(c) the beneficial owner, being a resident of a Contracting State, is a pension fund approved for tax purposes by that Contracting State and provided that its income is generally exempt from tax in the Contracting State; or

(d) the interest is paid in respect of a loan for a period of not less than three years made, guaranteed or insured, or a credit for such period extended, guaranteed or insured in the case of the United Kingdom by the Export Credits Guarantee Department, and in the case of Mexico, by Banco Nacional de Comercio Exterior, S.N.C., Banco Nacional de Obras y Servicios, S.N.C., and Nacional Financiera, S.N.C.

(5) 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, as well as all other income that is treated as income from money lent by the taxation law of the Contracting State in which the income arises. Penalty charges for late payment shall not be regarded as interest for the purposes of this Article.

(6) The provisions of paragraphs (1), (2) and (3) 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, or performs in that other 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 14 of this Convention, as the case may be, shall apply.

(7) Interest shall be deemed to arise in a Contracting State when the payer is that State itself, 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 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 State in which the permanent establishment or fixed base is situated.

(8) 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 paid 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 of interest. 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.

(9) Any provision in the laws of either Contracting State relating only to interest paid to a non-resident company shall not operate so as to deem such interest paid to a company which is a resident of the other Contracting State to be treated as a distribution or dividend by the company paying such interest. The preceding sentence shall not apply to interest paid to a company which is a resident of one of the Contracting States in which more than 50 per cent of the voting power is controlled, directly or indirectly, by a person or persons who are residents of the other Contracting State.

(10) The relief from tax provided for in paragraph (2) of this Article shall not apply if the beneficial owner of the interest is exempt from tax on such income in the Contracting State of which he is a resident and sells or makes a contract to sell the holding from which such interest is derived within three months of the date he acquired the holding.

(11) The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the debt-claim in respect of which the interest is paid to take advantage of this Article by means of that creation or assignment.

(12) For the purposes of paragraphs (2) and (3) of this Article, the term “recognised securities market” means:

(a) in the case of Mexico, stock exchanges duly authorised under the terms of the Stock Market Law (Ley del Mercado de Valores) of January 2, 1975;

(b) in the case of the United Kingdom, a stock exchange recognised in accordance with the terms of section 841 of the Income and Corporation Taxes Act 1988;

(c) any other stock exchange agreed upon by the competent authorities of the Contracting States.