will not have effect with respect to payments for the use or. or the right

to use. a copyright of cinematographic films or films or tapes used for radio or television broadcasting until January 1. 1979.

The term "royalties" is defined in paragraph (3) as payments of any kind made as consideration for the use of. or the right to use. any copy­ right of literary. artistic. or scientific work. including copyrights of cinematographic films or films or tapes used for radio or television broad­ casting. any patent. trademark. design. model. plan. secret process or formula. or other like right or property. or information concerning indus­

trial, commercial, or scientific experience (know-how). The term "royal­ ties" also includes gains derived from the sale. exchange. or other disposition of any such right or property which are contingent on the productivity, use. or disposition thereof. If the amounts realized are not so contingent, the provisions of Article 14 (Capital Gains) may apply.

p, ragraph (4) provides that the tax rate limitations of paragraph (2) shall not apply if the recipient 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 professional services from a fixed base situated therein. and the right or property in respect to which the

royalties are paid is effectively coMected with such permanent establish­ ment or fixed base, In such case. the royalties will be treated as business profits subject to Article 8 (Business Profits) or income from the per­ formance of independent personal services subject to tax under Article

- 15 (Independent Personal Services).

CANADA 838

If' excessive royalties are paid to a related person, paragraph (5) provides that this Article does not apply to the excessive portion of the royalty. The excessive portion may be taxed by each Contracting State according to its own laws, including the Convention where applicable. Thus, in the ·case of the United States, the excessive portion may be treated as a dividend or interest, or in whatever other manner is appro• prtate.

This Article is subject to the saving clause of paragraph (3) of Article 6 (General Rules of Taxation). Therefore, royalties derived by

a citizen or resident of the source Contracting State may be taxed by that Contracting State without regard to this Article.