Royalties tax limitation caps source-state withholding on payments to nonresident beneficial owners, subject to PE and arm's-length rules.

The Article permits taxation of royalties by the recipient's residence State while allowing source-state taxation subject to a limitation: if the beneficial owner is resident in the other Contracting State, source-state tax shall not exceed 10 per cent of the gross royalties, with competent authorities to agree the application. Royalties are comprehensively defined and deemed to arise where the payer is resident or where a payer's permanent establishment or fixed base bears the liability. Nexus, permanent establishment/fixed base exceptions, and arm's-length adjustments determine cases where business profits or independent services rules instead govern taxation.

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