ARTICLE 16

Director’s Fees

Under the existing Convention, compensation received by an individual who is a resident of one State as a director of a corporation of the other State is taxable by the other State. This result is obtained by the exclusion of such individuals from the 90-day, $3,000 rule. The proposed Convention continues this treatment, in part, in a specific Article dealing with the treatment of director's fees. The Article provides that a director's fee derived by an individual who is a resident of one of the States in his capacity as a member of the board of directors of a corporation of the other State may be taxed by the other State. This rule is limited to fees which an individual receives as a director as contrasted to fees that he might receive as an officer or employee of a corporation, by providing that a director's fee does not include fixed or contingent payments derived by an individual in his capacity as an officer or employee of a corporation. Further, to be a director's fee the payment must be of the type which cannot be taken as a deduction by the corporation paying the fee but is treated as a distribution of profits. These types of payments are typically made by Belgian corporations.

Director's fees taxable by Belgium under this Article are treated as Belgian source income for purposes of the United States foreign tax credit limitation regardless of where such services as a director are performed. This rule, which differs from the normal United States source rule, is designed to avoid double taxation.