Royalties withholding limit applies to beneficial owners, with source state taxation except when tied to a permanent establishment.

Royalties may be taxed in the recipient's State, while the source State may also tax royalties arising there subject to a withholding tax limit when the recipient is the beneficial owner. Royalties are broadly defined to include payments for use of copyrights, trademarks, designs, plans, secret formulas, processes, equipment and technical information. If the beneficial owner carries on business through a permanent establishment or performs independent personal services from a fixed base and the royalties are effectively connected with that presence, business profits or independent personal services provisions apply. Related party excess payments are adjusted to arm's length amounts for treaty application.

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