ARTICLE 16

Directors' Fees

This Article provides that a Contracting State may tax the fees and other similar compensation paid by a company that is a resident of that State for services performed in that State 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), and applies notwithstanding those articles. 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.

Consistent with the corresponding provision of the OECD Model, Article 16 applies to "directors fees and other similar payments," whereas the U.S. Model omits the word "similar." The U.S. Model’s deletion of "similar" is intended to make it clear that Article 16 applies to any form of payment for director services, including payments in kind, regardless of whether the compensation is "similar" to a fee. Accordingly, the Convention’s Protocol paragraph 13 clarifies that "similar payments" in the context of this Article is to be given a broad interpretation, and is to be understood to encompass benefits in kind received in respect of an employment and any other benefits, whether or not considered as salary in the domestic legislation of both Contracting States. Protocol paragraph 13 also provides a non-exhaustive list of examples of compensation that would be considered “similar payments”. The list includes, but is not limited to, the use of a residence or automobile, health of life insurance coverage and club memberships, provision of meals, food and groceries, child care, reimbursement of medical, pharmaceutical and dental care expenses, provision of work clothing, toys and school supplies, scholarships, reimbursement of training course expenses, mortuary and burial expenses.

The analogous OECD and U.S. provisions reach different results in certain cases. Under the OECD Model provision, a resident of one Contracting State who is a director of a corporation that 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 United States has entered a reservation with respect to the OECD provision. Under Article 16 of the Convention, the State of residence of the corporation may tax nonresident directors with no time or dollar threshold, but only with respect to remuneration for services performed in that State.

This Article is subject to the saving clause of paragraph 4 of Article 1 (General Scope). Thus, if a U.S. citizen who is a resident of the other Contracting State is a director of a U.S. corporation, the United States may tax his full remuneration regardless of where he performs his services.