Article 8. DIVIDENDS — U.S. Income Tax Treaty

The existing Convention provides that dividends derived from sources within one State by a resident of the other State not having a permanent establishment in the former State

(other than certain permanent estab lishments of the construction type) will be subject to tax in the former State at a rate not in excess of 15 percent. However, it provides for a 5 percent rate with respect to intercor porate dividends if, for the 12 months immediately preceding the date of payment, the recipient owns more than 50 percent of the stock of the paying corporation either alone or in association with not more than three other corporations of such other State, provided that each such corporation

of the other State owns 10 percent or

or the right to use, copyrights of liter ary, artistic, or scientific works (but not including copyrights of motion picture films or films or tapes used for radio or television broadcasting), pat ents, designs, models, plans, secret processes or formulae, trademarks, or other like property or right, or knowl edge, experience, or skill (know-how) and (b) gains derived from the sale or exchange of such rights or property, but only if payment is contingent on productivity, use, or disposition of the property. If the payments are not so contingent, the provisions of Article

12 (Capital Gains) applies. The provisions of this article do not apply if the recipient of a royalty has a permanent establishment in the State of source and the rights or prop erty giving rise to the royalty is effec tively connected to such permanent establishment. In such a case, the roy alty may be taxed as industrial or commercial profits under Article 5

(Business Profits). Thus, the “force of attraction” principle is also aban doned with respect to royalties.

If excessive royalties are paid be cause the payor and the recipient are related, the provisions of this article apply only to so much of the royalty as would have been paid to an unre lated person. The excess payment may be taxed according to its own law by the Contracting State from which the royalty is derived.