STEP 1: applicability of Article 16
First, assess which DTC applies in the given case (ie Arts. 1+2)
In order to apply Art. 16, the following conditions must be met:
1) Income
2) Cross-border situation
3) Resident of a contracting state
4) Director
Article 16 is applicable12
STEP 2: personal scope of application
The basic problem of Article 16 is that company law systems differ substantially worldwide. This creates
a problem since the term ‘director’ is NOT defined in the MC. Hence, the domestic law definition will be
decisive (Art. 3(2)). This can obviously lead to double (non) taxation.
I. Person
- Persons are defined in Article 3(1)(a) of the OECD Model. The term also includes
companies. The UK, Luxembourg, the Netherlands, Guernsey and other offshore
jurisdictions permit the appointment of corporate directors of companies incorporated in
their jurisdictions3
- Article 16, therefore, may also apply if the director of a company is incorporated (OECD
Commentary on Article 16 (see paragraph 1, first sentence)).
II. Member of the board of directors
- Article 16 covers only fees and similar payments derived by a person in his “capacity as a
member of the board of directors” -> the person in question must be an official member of
the board.4
o The OECD Commentary refers in this respect to “organs of companies”.
An ‘organ of a company’ can step both from (i) the relevant company law;
(ii) the statues of the company.
- Directors are traditionally divided into executive directors and non-executive directors5
1
Article 16 of the OECD Model relates to remuneration paid by a company to a member of its board of directors. The
State of the company’s residence, being the State of source, has the right to tax this remuneration.
- In treaty practice, it can be observed that States tend to apply the credit method.
2
In respect of the relationship to Article 15, in the 1963 Commentary to Article 15, Articles 18 and 19 were considered
to be “exceptions” while Article 16 was described as a “special provision” with respect to Article 15. The reason is
probably that remuneration of persons with supervising functions is not always regarded as income from employment
in the respective domestic tax laws. From the perspective of such countries, Article 16 is not an exception from Article
15 but covers a different type of income.
3
However, under the law of some States only individuals can be members of the board of directors.
4
It is not sufficient if a person exercises activities which are similar to a member of the board or if he has comparable
powers
5
Dutch limited liability companies are used to a two-tier board system for monitoring the policy of the executive
directors and the general course of events in the company and its business. This means that a supervisory board exists
First, assess which DTC applies in the given case (ie Arts. 1+2)
In order to apply Art. 16, the following conditions must be met:
1) Income
2) Cross-border situation
3) Resident of a contracting state
4) Director
Article 16 is applicable12
STEP 2: personal scope of application
The basic problem of Article 16 is that company law systems differ substantially worldwide. This creates
a problem since the term ‘director’ is NOT defined in the MC. Hence, the domestic law definition will be
decisive (Art. 3(2)). This can obviously lead to double (non) taxation.
I. Person
- Persons are defined in Article 3(1)(a) of the OECD Model. The term also includes
companies. The UK, Luxembourg, the Netherlands, Guernsey and other offshore
jurisdictions permit the appointment of corporate directors of companies incorporated in
their jurisdictions3
- Article 16, therefore, may also apply if the director of a company is incorporated (OECD
Commentary on Article 16 (see paragraph 1, first sentence)).
II. Member of the board of directors
- Article 16 covers only fees and similar payments derived by a person in his “capacity as a
member of the board of directors” -> the person in question must be an official member of
the board.4
o The OECD Commentary refers in this respect to “organs of companies”.
An ‘organ of a company’ can step both from (i) the relevant company law;
(ii) the statues of the company.
- Directors are traditionally divided into executive directors and non-executive directors5
1
Article 16 of the OECD Model relates to remuneration paid by a company to a member of its board of directors. The
State of the company’s residence, being the State of source, has the right to tax this remuneration.
- In treaty practice, it can be observed that States tend to apply the credit method.
2
In respect of the relationship to Article 15, in the 1963 Commentary to Article 15, Articles 18 and 19 were considered
to be “exceptions” while Article 16 was described as a “special provision” with respect to Article 15. The reason is
probably that remuneration of persons with supervising functions is not always regarded as income from employment
in the respective domestic tax laws. From the perspective of such countries, Article 16 is not an exception from Article
15 but covers a different type of income.
3
However, under the law of some States only individuals can be members of the board of directors.
4
It is not sufficient if a person exercises activities which are similar to a member of the board or if he has comparable
powers
5
Dutch limited liability companies are used to a two-tier board system for monitoring the policy of the executive
directors and the general course of events in the company and its business. This means that a supervisory board exists
