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

Andy COOLS

Article 16 OECD
Article 16 OECD Model tax treaty (Introduced in 1963
Model):
“Directors’ fees 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
state.
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
OECD.

Article 16 OECD
Some terms are not obvious (Director? Fee? Board of
directors?)
Application of legal rules requires interpretation.
Interpretation is an art which itself is subject to legal
rules.
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
management.
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?

QUESTIONS?
andy.cools@unitedtaxnetwork.be