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HMRC internal manual

Double Taxation Relief Manual

HM Revenue & Customs
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DT: Philippines: double taxation agreement, Article 11: Royalties

(1) Royalties arising in a Contracting State which are derived and beneficially ownedby a resident of the other Contracting State may be taxed in that other State.

(2) Such royalties may also be taxed in the Contracting State in which they arise, andaccording to the law of that State. However, the tax so charged shall not exceed:

  1. 15 per cent of the gross amount of the royalties, where the royalties are paid:

(i) by an enterprise registered with the Philippine Board of Investments and engaged in preferred areas of activity; or

(ii) in respect of cinematograph films and films or tapes for television or radio broadcasting;

  1. in all other cases, 25 per cent of the gross amount of the royalties.

(3) The term `royalties` as used in this Article means payment of any kind received asa consideration for the use of, or the right to use, any copyright of literary, artisticor scientific work (including cinematograph films, and films or tapes for radio ortelevision broadcasting), any patent, trade mark, design or model, plan, secret formula orprocess, or for the use of, or the right to use, industrial, commercial or scientificequipment, or for information concerning industrial, commercial or scientific experience.

(4) The provisions of paragraphs (1) and (2) of this Article shall not apply if thebeneficial owner of the royalties, being a resident of a Contracting State, carries on atrade or business in the other Contracting State in which the royalties arise, through apermanent establishment situated therein, or performs in that other State professionalservices from a fixed base situated therein and the right or property in respect of whichthe royalties are paid is effectively connected with such permanent establishment or fixedbase. In such a case, the provisions of Articles 7 or 13, as the case may be, shall apply.

(5) Royalties shall be deemed to arise in a Contracting State where the payer is thatState itself, a political subdivision, a local authority or a resident of that State.Where, however, the person paying the royalties, whether he is a resident of a ContractingState or not, has in a Contracting State a permanent establishment or fixed base inconnection with which the obligation to pay the royalties was incurred and the royaltiesare borne by that permanent establishment or fixed base, then the royalties shall bedeemed to arise in the Contracting State in which the permanent establishment or fixedbase is situated.

(6) Where, owing to a special relationship between the payer and the beneficial owner orbetween both of them and some other person, the amount of the royalties paid, havingregard to the use, right or information for which they are paid exceeds the amount whichwould have been agreed upon by the payer and the beneficial owner in the absence of suchrelationship, the provisions of this Article shall apply only to the last-mentionedamount. In that case, the excess part of the payments shall remain taxable according tothe law of each Contracting State, due regard being had to the other provisions of thisConvention.