Royalties tax cap limits source-state withholding for beneficial owners while preserving PE and arm's-length adjustments.

Taxation of cross-border royalties allows both the recipient's State and the source State to tax royalties, but limits source withholding when the recipient is the beneficial owner. The term "royalties" covers payments for rights to use intellectual property, computer programmes, know how, equipment or information. The withholding limit does not apply if the beneficial owner has a permanent establishment or fixed base in the source State and the royalties are effectively connected to that presence. Royalties are sourced to the payer's State or a payer's permanent establishment, and amounts exceeding arm's length remuneration remain taxable under domestic law.

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