Royalties taxation: source state limited tax where beneficial owner is resident; PE and arm's length adjustments apply.

Taxation of cross border royalties permits taxation in the recipient's State while allowing the source State to tax royalties arising there, limited by a ceiling when the beneficial owner is resident in the other State. Royalties are broadly defined to cover payments for use of copyrights, patents, trademarks, know how, designs, equipment and technical information. The PE/fixed base exception applies where rights are effectively connected with a permanent establishment or fixed base, and royalties are deemed to arise in the State of the payer or of the PE when borne by that PE. Related party excess payments are limited to the arm's length amount under the Article.

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