(1) Royalties 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 royalties may also be taxed in the Contracting State from which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed 10 percent of the gross amount of the royalties.
(3) The term royalties as used in this Article, means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, or films or tapes used for radio or television broadcasting or satellite broadcasting, cable, optical fiber or similar technology used for public broadcasting, magnetic tapes, disks or laser discs, software, patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience (know-how).
(4) The provisions of paragraphs (1) and (2) shall not apply if the beneficial owner of the royalties, being resident of a Contracting State, carries on business in the other Contracting State in which the royalties arises, commercial or industrial activity through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment or fixed base.
- (a) such permanent establishment or fixed base, or
- (b) the business activities referred to in sub-paragraph (c) of paragraph (1) of Article 7.
In such case, the provisions of Article 7 or 15, as the case may be, shall apply.
(5) Royalties shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, however, the person paying the royalties, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or fixed base in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.
(6) 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 royalties, having regard to the use, right 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 relationship, the provisions of this Article shall apply only to that last-mentioned amount. In such case, the excess shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.
(7) The provisions of this Article shall not apply if the main purpose, or one of the main purposes, of any person involved in the creation or alienation of the shares or other rights in respect of which royalties are paid is to take advantage of this Article by such creation or alienation.