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HMRC internal manual

Double Taxation Relief Manual

HM Revenue & Customs
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USA: Double taxation agreement, Article 12: Royalties

  1. Royalties arising in a Contracting State and beneficially owned by a resident of the other Contracting State shall be taxable only in that other State.
  2. The term “royalties” as used in this Article means:

(a) any consideration for the use of, or the right to use, any copyright of literary, artistic, scientific or other work (including computer software and cinematographic films) including works reproduced on audio or video tapes or disks or any other means of image or sound reproduction, any patent, trade mark, design or model, plan, secret formula or process, or other like right or property, or for information concerning industrial, commercial or scientific experience; and

(b) any gain derived from the alienation of any right or property described in sub-paragraph a) of this paragraph, to the extent that the amount of such gain is contingent on the productivity, use, or disposition of the right or property.

  1. The provisions of paragraph 1 of this Article shall not apply if the beneficial owner 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, and the royalties are attributable to such permanent establishment. In such case, the provisions of Article 7 (Business Profits) of this Convention shall apply.
  2. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties paid exceeds, for whatever reason, the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.
  3. The provisions of this Article shall not apply in respect of any royalty paid under, or as part of, a conduit arrangement.

(Further clarification to paragraph 4 may be found at DT 19939X)