Royalties tax limitation: source withholding capped and arm's length adjustments apply to cross border royalty payments.

Article 12 limits source taxation of royalties: royalties paid cross-border may be taxed in the recipient's State, but the source State may tax them at a withholding rate capped when the recipient is the beneficial owner. The Article defines royalties to cover payments for use of intellectual property, equipment or technical information while excluding resource extraction payments. If royalties are effectively connected to a permanent establishment or fixed base in the source State, provisions on business profits or independent personal services apply instead. Related-party excess payments are adjusted to arm's-length amounts for treaty relief, with excess taxable under domestic law.

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