ARTICLE 12

Royalties

(1) Royalties derived from sources within one of the Contracting States by a resident of the other Contracting State shall be exempt from tax by the first-mentioned Contracting State.

(2) The term “royalties” as used in this article means:

(a) Payment of any kind made as consideration for the use of, or the right to use, copyrights of literary, artistic, or scientific works (but not including copyrights of motion picture films or films or tapes used for radio or television broadcasting), patents, designs, models, plans, secret processes or formulae, trademarks, or other like property or rights, or knowledge, experience, or skill (know-how), and

(b) Gains derived from the sale, exchange, or other disposition of any such right or property to the extent that the amounts realized on such sale, exchange, or other disposition for consideration are contingent on the productivity, use, or disposition of such right or property.

(3) Royalties shall be treated as income from sources within one of the Contracting States only if paid by such Contracting State, a political subdivision or a local authority thereof, or by a resident of that Contracting State. Notwithstanding the preceding sentence:

(a) If the person paying the royalties (whether or not such a person is a resident of one of the Contracting States) has a permanent establishment in one of the Contracting States with which the right or property giving rise to the royalties is effectively connected and such royalties are borne by such permanent establishment, or

(b) If the person paying the royalties is a resident of one of the Contracting States and has a permanent establishment in a State other than a Contracting State with which the right or property giving rise to the royalties is effectively connected and such royalties are borne by such permanent establishment, such royalties shall be deemed to be from sources within the State in which the permanent establishment is situated.

(4) Paragraph (1) shall not apply if the recipient of the royalty, being a resident of one of the Contracting States, has in the other Contracting State a permanent establishment and the right or property giving rise to the royalty is effectively connected with such permanent establishment. In such a case the provisions of Article 7 (Business Profits) shall apply.

(5) Where any royalty paid by a person to any related person exceeds an amount which would have been paid to an unrelated person, the provisions of this article shall apply only to so much of the royalty as would have been paid to an unrelated person. In such a case the excess payment may be taxed according to its own law by the Contracting State from which the royalty is derived.