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This Article provides that a Contracting State may tax the fees paid by a company which is a resident of that State for services performed by an individual resident of the other Contracting State in his capacity as a director of the company. This rule is an exception to the more general rules of Article 14 (Independent Personal Services) and Article 15 (Dependent Personal Services). Thus, a resident of one Contracting State who is a director of a corporation that is resident in the other Contracting State is subject to tax in that other State in respect of his directors' fees regardless of where the services are performed. In determining whether a director's fee is subject to tax in the country of residence of the corporation, whether the fee is attributable to a fixed base is not relevant.
The provision in the Convention is identical to the analogous provision in the OECD Model. The U.S. Model reaches a different result, providing that the State of residence of the company may tax nonresident directors with no time or dollar threshold, but only with respect to remuneration for services performed in that State.
This Article does not grant an exclusive taxing right, nor does it limit the effect of the saving clause of paragraph 4 of Article 1 (General Scope) of the Convention. Thus, if a U.S. citizen is a director of a Latvian corporation, the United States may tax his full remuneration, subject, of course, to any foreign tax credit that may be available.
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