Royalties tax treatment: source state may tax with limited withholding, residence retains taxation rights; PE connection alters rule. Article 12 allocates taxation of royalties to the recipient's State of residence while allowing the source State to tax royalties arising there, subject to a maximum withholding. It defines royalties to include payments for use of copyrighted works, patents, trademarks, designs, equipment and technical information. Royalties connected with a recipient's permanent establishment or fixed base in the source State are taxed under Articles 7 or 14. Royalties are deemed to arise where the payer is resident or where a payer's permanent establishment incurred the liability. Payments exceeding an arm's-length amount due to special relationships are limited to the arm's-length portion for treaty purposes.