(1) Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed only in that other State.
(2) However, such royalties may be taxed in the Contracting State in which they arise and according to the laws of that state, but if the recipient is the beneficial owner of the royalties in that state, the tax so charged shall exceed:
- (a) ten percent of the gross amount of such royalties following the provisions of paragraph (3), sub-paragraph (a) of this Article;
- (b) five percent of the gross amount of such royalties following the provisions of paragraph (3), sub-paragraph (b) of this Article.
(3) The term "royalties" as used in this Article means payments of any kind received:
- (a) as a consideration for the use of, or the right to use, any copyright in a literary or artistic work, including cinematographic films, or the right to use any patent, trademark, design, including the recording of artistic or athletic events through television or radio transmissions;
- (b) the use or right to use any copyright in scientific work, patent, trademark, design or model, plan, secret formula or process, or any information related to industrial, commercial or scientific experience.
(4) The provisions of paragraph (1) and (2) of this Article shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise through a permanent establishment situated therein and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 or Article 14, shall apply.
(5) Royalties shall be deemed to arise in a Contracting State when the payer is that State itself, one of its provinces, one of its political subdivision (e.g. county or municipality), or a resident of that State. Where, however the person paying the royalties whether he is a resident in that State or not, has in a Contracting State a fixed base or a permanent establishment, in connection with which the liability to pay the royalties was incurred and such royalties are borne by such fixed base or permanent establishment, then such royalties shall be deemed to arise in that Contracting State in which the fixed base or permanent establishment is situated.
(6) Where, by reason of a special relationship, either between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right of use or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such special 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 Contracting State, due regard being had to the other provisions of this Convention.