ARTICLE 17

Directors' Fees

This Article provides that a Contracting State may tax the fees paid by a company which is a resident of that State for services performed by an individual resident of the other Contracting State in his capacity as a director of the company. This rule is an exception to the more general rules of Article 15 (Independent Personal Services) and Article 16 (Dependent

Personal Services). Thus, for example, in determining whether a non-employee director's fee is subject to tax in the country of residence of the corporation, whether the fee is attributable to a fixed base is not relevant.

The U.S. Model has no comparable provision. The preferred U.S. policy is to treat a corporate director in the same manner as any other individual performing personal services -outside directors would be subject to the provisions of Article 15 (Independent Personal Services) and inside directors would be subject to the provisions of Article 16 (Dependent Personal Services). The preferred Indian position, on the other hand, is that reflected in the OECD Model, in which a resident of one Contracting State who is a director of a corporation which is resident in the other Contracting State is subject to tax in that other State in respect of his directors' fees regardless of where the services are performed. The provision in Article 17 of the Convention represents the Indian position.

This Article does not grant an exclusive taxing right, nor does it limit the effect of the saving clause of paragraph 3 of Article 1 (General Scope) of the Convention. Thus, if a U.S. citizen is a director of an Indian corporation, the United States may tax his full remuneration, subject, of course, to any foreign tax credit that may be available under the limits of domestic law.