ARTICLE 14. ROYALTIES

The proposed Convention provides on a reciprocal basis an exemption for artistic and literary royalties but permits a tax to be levied at a maximum rate of 15 percent on other royalties.

The term "royalties" is defined to Include payments of any kind made as con­ sideration for the use of, or the right to use, copyrights, artistic or scientific works, patents, designs, plans, secret processes or formulae, trademarks or other

like property or rights (not including motion picture films or films or tapes for radio or television broadcasting) or information concerning industrial, com­

mercial, or scientific knowledge, experience, or skill.

For purposes of the proposed Convention, the term "royalties" does not include any royalties, rentals, or other amounts paid In respect of the operation of mines

or quarries or other natural resources. The rules applicable to such income are contained in Article 15 (Income from Real Property) of the proposed Convention.

The provisions of this Article do not apply If the recipient of a royalty has a permanent establishment In a State of source and the rights or property giving rise to such royalty Is effectively connected with such permanent establishment. In such a case, the royalty may be taxed as industrial or commercial profits under Article 8 (Business Profits). Thus, the "force of attraction" principle is also abandoned with respect to royalties. To determine the source of a particular royalty, the rules provided in paragraph (3) of Article 5 (Source of Income) shall be used.

Under the proposed Convention, If excess royalties are paid because the payor and recipient are related, the provisions of the royalties Article apply only to so much of the royalty as would have been paid to an unrelated person. The excess payment may be taxed by each State, according to Its own law including the provisions of the proposed Convention where applicable.