ARTICLE 16

Directors' Fees

This Article provides that a Contracting State may tax the fees and other compensation paid by a company that is a resident of that State for services performed by a 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 14 (Independent Personal Services) and Article 15 (Dependent Personal Services). Thus, for example, in determining whether a director's fee paid to a

non-employee director is subject to tax in the country of residence of the corporation, it is not relevant to establish whether the fee is attributable to a fixed base in that State.

Although the language of the Article is identical to that of Article 16 of the OECD Model, paragraph 14 of Article 1 of the Protocol provides that payments described in Article 16 may be taxed in the State of residence of the paying Company only to the extent that the payments are attributable to services performed in that State. Thus, the treatment of directors’ fees is the same as under the U.S. Model.

This Article is subject to the saving clause of paragraph 2 of Article 1 (Personal Scope). Thus, if a U.S. citizen who is a resident of Italy is a director of a U.S. corporation, the United States may tax his full remuneration regardless of where he performs his services.