Royalties taxation: source state may levy limited withholding while residence state taxes; PE connection changes treatment. Royalties may be taxed by the recipient's State of residence and by the State of source subject to a withholding limit when the recipient is the beneficial owner. The article defines royalties broadly and provides that if the beneficial owner's right is effectively connected with a permanent establishment or fixed base in the source State, business income or independent service provisions apply. Royalties are deemed to arise where the payer is a State or resident, or when borne by a permanent establishment, and amounts exceeding arm's length consideration under special relationships remain taxable under domestic law.