Royalty taxation permits source-state taxation within a capped gross-basis rate, subject to permanent establishment connection rules.

Royalties may be taxed in both the recipient's State and the source State, with source-State tax limited to 15 per cent of the gross royalty amount. The limitation does not apply where the relevant right or property is effectively connected with the recipient's permanent establishment or fixed base in the source State. Royalty source depends on the payer's residence or the location of a permanent establishment bearing the payment liability. Amounts exceeding an arm's-length price because of a special relationship are taxable under the treaty only up to the arm's-length amount.

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