Article 13, ROYALTIES

Paragraph (1) provides that royalties derived by a resident of one Contracting State from sources within the other Contracting State may be taxed by both Contracting States, However, the rate of tax imposed by that other Contracting State on such royalties is limited under paragraph (2). If the royalties are derived from sources within the United States,

the United States tax is limited to a rate which does not exceed 15 percent of the gros amount of those royalties, 0, the other hand. if the royaltie• are derived from sources within the Philippines. the tax is subject to three limitations. In general. the Philippine tax is limited to a rate which does not exceed 25 percent of the gross amount of the royalties. However. if the royalties are paid by a corporation registered with the Philij>pine Board or Investments and engaged in preferred areas or activlty. the tax is limited to a rate which does not exceed 15 percent of the gross amount or the royalties. Notwithstanding such 25 percent and 15 percent limitations. the Philippine tax cannot exceed the lowest rate of Philippine tax that may be impo.sed on royalties of the same kind under similar cir­ cumstances to a resident of a third State, Thus. for example, because the Philippines agreed to limit its tax -on film. royalties to an amount not in excess of l O percent of the gross amount of such royalties in its Income Tax Conventions with Sweden and Denmark, that limitation will apply to film royahies paid under similar circumstances to United States residents, or course. if those 10-percent limitations are renegotiated upward by the Philippines the limitation with respect to the tax on United States residents will be affected. However. under paragraph (2) of Article 29 (Entry Into Force). such third-described limitation with respect to the tax on royalties