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ARTICLE 16
DIRECTORS FEES AND REMUNERATION OF TOP-LEVEL MANAGERIAL OFFICIALS
(1) 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.
(2) Salaries, wages and other similar remuneration derived by a resident of a Contracting
State in his capacity as an official in a top level managerial position of a company which
is a resident of the other Contracting State may be taxed in that other State.
92. Scope
This Article deals with fees and similar payments derived by a person in his capacity
as a member of the Board of Directors of a company, and also payments to persons
performing top-level managerial functions.
93. Directors' fees
The country of the residence of the company of which the recipient is the director has
the right to tax such income, irrespective of his being the resident of the other
Contracting State. Fees paid to the person who holds the office of director of a
corporation, the control and management of which is exercised in one of the Contracting
States are chargeable to tax in that country irrespective of where the person resides.
This is because the office of a' director of a company is located in the place where the
control and management of the company is exercised. Thus
if that office is in Pakistan any fee derived from the office can be said to have arisen
in Pakistan. Only. director's fee and similar payment and not any other remuneration paid
to a resident of a State on account of employment is covered by paragraph (1) of this
Article.
A director may have a dual capacity; such as a managing director may both be a director as
well as an employee. In the capacity of a managing director he may be regarded as having
not only the capacity as persona of a director but also has the persona of an employee, or
an agent depending upon the nature of his work and the terms of his employment. Whether or
not a managing director is servant of the company apart from his being a director cannot
be determined by the Articles of Association and terms of his employment. As a managing
director he functions also as a member of the Board of Directors whose collective decision
he has to carry out in terms of the Article of Association and he could do nothing which
he is not permitted to do. Under the Companies Ordinance, 1984 the business of the company
is managed by the directors.
Thus the duality of the capacities gives rise to remuneration received by him different
character. For attending the meeting of the Board of Directors as director, he is paid fee
and for functioning as the servant of the company he receives salary. The former alone is
covered by paragraph (1) of Article. (Agreement with Belgium, Singapore, clarifies that
director's fee not being remuneration for discharge of day-to-day functions of a technical
or managerial nature, are taxable in the country where the company is resident.)
The latter, viz., remuneration for functioning as servant is dealt with in paragraph (2).
This paragraph covers payment to persons performing top level managerial functions. The
'top-level managerial position' comprises a limited group of officials who have primary
responsibility for the overall direction of affairs of the company, i.e, the management of
the whole or substantially the whole affairs of the company, and may include a director,
secretary, manager. Their salaries, wages and other similar remuneration are taxed in the
State of which the company is resident, and not in the State of which these persons are
residents or where the employment is exercised as is provided under Article 15. The
operation of Article 15 is made, inter alia, subject to Article 16. The expressions
‘salaries’, ‘wages’ and ‘other similar remuneration, have been
discussed in the preceding Chapter, paragraphs 88, 88.1, 88.2 and 88.3.
