Article 16 of the OECD Model Convention: History, Scope and Future

Article 16 is one of the few provisions of the OECD Model that have remained virtually the same since the Model was first published in 1963 and consists of only one sentence: “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.” OECD member countries as well as a considerable number of non-members accept Article 16 of the Model as a guideline for their bilateral treaty negotiations, often following it to the letter.

Nevertheless, the scope of this provision is still vague in many respects. Therefore, this book provides evidence on the interpretation and the legal effects of Article 16 by way of answering the following questions: Who might be a director? What activities are performed by a director? Under what conditions is a company resident in the other contracting state? Which company organs are comprised? What conditions exist for being a member of a board of directors? How to draw a line between Article 16 and other distribution rules for certain types of remuneration. What is the relation between Article 16 and domestic law provisions? How likely is it that double or non-taxation arises in triangular situations?

The last part of the book approaches Article 16 from a tax policy point of view. It analyses why Article 16 fulfils an important role within the OECD Model and provides modifications in order to compensate current shortcomings of the provision.