Article 12 - Royalties - International Taxation - Income Tax

Article 12 - Royalties As per OECD Model Tax Convention Confers Right to tax Royalty Income Royalties arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State. [ Para 1 of Article 12 ] Exception of this para 1 of Article 12 If the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise through a permanent establishment situated therein and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply. [ Para 3 of Article 12 ] Excess payment of Royalties specified in para 2 of Article 12 Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount (in Para 2 of Article 12 ) . In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention. [ Para 4 of Article 12 ] Definition of Royalties Royalties means payments of any kind received as a consideration for the use of or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. [ Para 2 of Article 12 ] As UN Model Tax Convention Confers Right to tax Royalty Income Royalties arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. [ Para 1 of Article 12 ] Specified Limit Royalty Income taxable in Contracting state Such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other Contracting State, the tax so charged shall not exceed ___ % ( the percentage is to be established through bilateral negotiations ) of the gross amount of the royalties. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. [ Para 2 of Article 12 ] Exception of Para 1 and 2 of Article 12 If the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect of which the royalties are paid is effectively connected with (a) such permanent establishment or fixed base, or with (b) business activities referred to in (c) of paragraph 1 of Article 7. In such cases the provisions of Article 7 or Article 14, as the case may be, shall apply. [ Para 4 of the Article 12 ] Deemed to be arise in Contracting State Royalties shall be deemed to arise in a Contracting State when the payer is a resident of that State. Where, the person paying the royalties, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties was incurred, and such royalties are borne by such permanent establishment or fixed base, then such royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. [ Para 5 of the Article 12 ] Definition of Royalties Royalties means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience. [ Para 3 of Article 12 ]