Royalties tax limitation for nonresident beneficial owners, with source taxation excluded where payments are effectively connected to a permanent establishment. Royalties paid to a resident of the other Contracting State may be taxed in the recipient's State, while the source State may also tax them subject to a limited source withholding when the recipient is the beneficial owner. The Article broadly defines royalties to include copyrights, patents, trademarks, designs, know how, industrial equipment and related information, and deems royalties to arise where the payer is resident or where a payer's permanent establishment or fixed base incurs and bears the liability. Where royalties are effectively connected with a permanent establishment or fixed base, business profits or independent services rules apply, and amounts exceeding arm's length due to special relationships are taxable under domestic law.