Article 12 Interest
     1. Interest arising in one of the States and paid to a resident of the other State may be taxed in that other State.
     2. However, such interest may also be taxed in the 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, interest paid or credited to a resident of the Netherlands by a person licensed to carry on banking business in Malaysia, or on an approved loan or a long-term loan, shall be exempt from Malaysian tax.
     4. The competent authorities of the States shall by mutual agreement settle the mode of application of paragraphs 2 and 3.
     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. Penalty charges for late payment shall not be regarded as interest for the purpose of this Article.
     6. The provisions of paragraphs 1, 2 and 3 shall not apply if the beneficial owner of the interest, being a resident of one of the States, carries on business in the other State in which the interest arises, through a permanent establishment situated therein, and the debt-claim in respect of which the interest is paid is effectively connected with such permanent establishment. In such case, the provisions of Article 8 shall apply.
     7. Interest shall be deemed to arise in one of the States when the payer is that State itself, a political subdivision, a local authority or statutory body thereof, or a resident of that State. Where, however, the person paying the interest, whether he is a resident of one of the States or not, has in one of the States a permanent establishment in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment, then such interest shall be deemed to arise in the State in which the permanent establishment 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, 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 laws of each State, due regard being had to the other provisions of this Agreement.
     9. Notwithstanding the provisions of paragraph 2, the Government of one of the States shall be exempt from tax in the other State in respect of interest derived by the Government from that other State. For the purposes of this paragraph, the term "Government":
(a) in the case of the Netherlands, means the Government of the Kingdom of the Netherlands and shall include:
(i) the local authorities;
(ii) the statutory bodies thereof;
(iii) the Nederlandse Bank (Central Bank);
(iv) the Nederlandse Financierings Maatschappij voor Ontwikkelingslanden N.V. (Netherlands finance company for developing countries) and the Nederlandse Investeringsbank voor Ontwikkelingslanden N.V. (Netherlands investment bank for developing countries);
(v) such institutions, the capital of which is wholly owned by the Government of the Kingdom of the Netherlands or the local authorities, as may be agreed from time to time between the competent authorities of the States;
(b) in the case of Malaysia, means the Government of Malaysia and shall include:
(i) the government of the states;
(ii) the local authorities;
(iii) the statutory bodies thereof;
(iv) the Bank Negara Malaysia;
(v) such institutions, the capital of which is wholly owned by the Government of Malaysia or the governments of the states or the local authorities, as may be agreed from time to time between the competent authorities of the States.