Andy Cools, Arcalius, Opglabbeek, Belgium: Directors fees in an ...

Andy Cools, Arcalius, Opglabbeek, Belgium: Directors fees in an ...


Article 16 OECD

Article 16 OECD Model tax treaty (Introduced in 1963


Directorsfees and other similar payments derived by a

resident of a Contracting State in his capacity as a

member of the board of directors of a company which is

a resident of the other Contracting State may be taxed

in that other State.”

Article 16 OECD

This article relates to remuneration received by a

resident of a state, whether an individual or a legal

person, in the capacity of a member of a board of

directors of a company which is a resident of the other


Since it might sometimes be difficult to ascertain

where the services are performed, the provision treats

the services as performed in the state of residence of

the company. (League of Nations 1928)

Article 16 OECD

The wording of the OECD Model Tax Convention and

the UN Model Convention follows the same pattern.

But: UN MC, in addition, has a second paragraph with

a provision on payments in respects of top level

managerial positions of a company.

The US MC contains also a provision corresponding to

article 16 OECD and UN MC (2006 Model tax

Convention). Difference = services rendered in the

other contract state. Physical presence, cfr. Article 15


Article 16 OECD

Some terms are not obvious (Director? Fee? Board of


Application of legal rules requires interpretation.

Interpretation is an art which itself is subject to legal


The starting point for tax treaty interpretation is the

question which standards apply for the interpretation

of international law in general (Convention of Vienna)

Article 16 OECD

A. What kind of companies?

Commentaries 3/22: The term "company" means in the first

place any body corporate. In addition, the term covers

any other taxable unit that is treated as a body corporate

according to the tax laws of the Contracting State in which

it is organised. The definition is drafted with special regard

to the article on dividends. The term "company" has a

bearing only on that Article, paragraph 7 of Article 5, and

Article 16.

Is a profit intention necessary? Cfr. Article 19 (3) OECD

Article 16 OECD

New double tax convention between Belgium: - The

Netherlands: based on article 32 Belgian Income tax

Code = context (article 3§2 OECD)

=> Only directors of companies who are subject to

corporate tax are “directors”. So, for the

interpretation of article 16 DTC also?

Article 16 OECD

Conclusion: not only companies who are subject to corporate tax.

(OECD) new treaty Belgium – The Netherlands.

Also companies without profit intention? (OECD)

Definition of “resident”. Cross border situation is necessary for the

application of a double tax convention. = state of company’s residence

= state of source.

=> Belgium: real seat theory: where decision makers are located! (Also

Germany, France, Greece, Spain,…)

=> The Netherlands: Incorporation docrine: application of the legal

system where the company is incorporated. (Also Sweden, Austria, …)

Dual resident: article 4 OECD: prevalation place of real seat. Plea for a

forma criterion? Quid abuse?

Article 16 OECD

B. What kind of directors?

Ratione personae: related to the specific double tax conventions!

What is a “member of the board of directors”? The MC failed to define

the term. = domestic law. In origin only supervisory functions.

A lot of deviatons of the OECD Model tax treaty. F.e. similar organ as

the board of directors, … = comparable organs. In some countries

organs or companies exists which are simular in function to the board

of directors. Contracting states are free to include in bilateral

conventions such organs of companies under a provision

corresponding to article 16.

Belgian – Dutch treaty: reference to article 32 Belgian Income Tax Code

= context (reference in the common interpretation of the convention).

Two kind of directors new treaty

Director : formal but also material (every independent manager of the

company with a technical, financial of commercial task).

Article 16 OECD

C. Remuneration

Only such remuneration falls within the scope of the article

as is paid in respect of the supervision of a company’s


The remuneration may be paid in a fixed amount or as a

share in the company’s profits or in both forms side by side.

If however, the member of a board of directors is also a

shareholder of the company concerned, it should be noted

that any remuneration dependent on the profits made by

the company might be considered to be distributions in

respect of his interest in the company, i.e. dividends, at

least under the law of some countries.

Belgium – The Netherlands treaty: “werkende vennoten:

article 15 or 16?

Article 16 OECD

Other functions: a member of the board of directors of

a company often also has other functions with the

company, e.g. as ordinary employee, adviser,

consultant, etc. It is clear that the article does not

apply to remuneration paid to such a person on

account of such other functions

BUT: Belgium: force of attraction. Also in new double

tax treaty with the Netherlands?

Fictitious income? Only when permitted in context? Is

a real payment necessary?


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