Conditional Director Fees: How the US-France Treaty Allocates Board Fees

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July 24, 2026·Updated August 2, 2026·8 min read·Tax Treaty Analysis

Camille is a French resident who sits on the board of Meridian Audio Inc., a US company, for an annual fee of $40,000. The board meets four times a year, and most years she joins every meeting by video from Paris. Some years she flies to New York for one of them. How much US tax Meridian must withhold ($0 or $3,000) turns on that trip, and on two rules that run in a fixed order.

First, the sourcing statute. Under IRC §861(a)(3), compensation for personal services is US-source only to the extent the services are performed in the United States. Board service performed entirely outside the US is foreign-source income of a foreign person: no US withholding, and nothing to report on Form 1042-S. When the work is split, only the US-performed share is US-source. The foreign share falls out before any treaty is consulted.

Second, the treaty, for the US-source share. The statutory default on that share is 30% (IRC §1441/§1442). Whether a treaty reduces it depends on the wording of its Directors' Fees article (modeled on OECD Article 16). For the full picture, see the companion overview, Six Ways US Tax Treaties Handle Director Fees.

This article covers the most common treaty structure: the conditional rule. Eighteen US treaties follow it, including Germany, France, the United Kingdom, Belgium, Italy, Spain, Slovakia, Portugal, and Mexico. Its defining feature is that the treaty's taxing grant is scoped by where the services are performed: the US may tax the fee only to the extent it is earned by services performed in the US. On a split fee, the treaty allocates.

The setup: where the words matter

On a split fee, a conditional treaty taxes the US-performed share at 30% and leaves the rest alone. That result comes from a tell-tale phrase: these Directors' Fees articles say that fees a resident earns "for services rendered in the other [i.e., the United States] State" may be taxed by that other State.

Those words scope the grant. They do not build a switch:

• Fees for services performed outside the US are simply not "for services rendered in the other State". They sit outside the treaty's grant entirely. No US services at all means 0% withholding and nothing reported.
• Fees for services performed in the US are inside the grant. The treaty offers no cap and no reduced rate on that share, so the statutory 30% applies to it.

A common reading treats this structure as binary: exemption kept in full with zero US services, "lost" in full with any. The treaty's own construction says otherwise. Treasury's Technical Explanations state that the source state may tax nonresident directors "only with respect to remuneration for services performed in that State." On a split fee the treaty itself divides the money: 30% × the US-performed fraction, and the rest is outside the grant. (Why you can rely on this: the §861(a)(3) sourcing statute produces the same split independently, so the allocation holds twice over in an audit.)

Camille, worked through with dollars

Scenario A. Camille never sets foot in the US for board work. She attends every meeting by video from Paris and does all board work from France.

No services performed in the US → the entire fee is foreign-source. Withholding: $0, and the payment is not reported on Form 1042-S. Meridian pays Camille the full $40,000.

Scenario B. Camille flies to New York for one of the four meetings. Everything else stays remote from France.

One quarter of her board services were performed in the US, so $10,000 is US-source, and that same $10,000 is the share the treaty's grant covers ("for services rendered in the other State"). The treaty gives no reduced rate on it. Withholding: 30% × $10,000 = $3,000. The remaining $30,000 is for Paris-performed services: outside the treaty grant, foreign-source under the statute, not withheld upon, not reported.

That is the conditional structure at work. The New York meeting created a US-performed share, and only that share is taxed at the full statutory rate. The Paris work stays outside the grant. The allocation is not a concession or a workaround. It is what the treaty's own words, as Treasury construes them, provide.

Conditional vs. pro-rata: same arithmetic, different footing

A Dutch director in Camille's Scenario B owes the same $3,000. Three treaties (the Netherlands, Sweden, and Ukraine) write the proration into the treaty itself: the fee is taxable "to the extent" the services are rendered in the US.

The difference is the wording, not the number. The Dutch director's proration is written into the article in so many words. The French director's proration comes from the article's scope. The grant covers only fees "for services rendered in" the US. In an audit, both positions are treaty-supported. They are documented slightly differently: the pro-rata claim quotes the "to the extent" clause, while the conditional-country claim cites the article's scope and the service-location records behind the allocation.

Conditional vs. unconditional and no-article countries

At the other end, thirteen treaties tax the US-source share without any service condition. The article says board fees "may be taxed," full stop. Denmark, Japan, China, India, Switzerland, and Bulgaria sit here. And twenty-six treaty countries (Canada is the best-known) have no Directors' Fees article at all, leaving the statutory 30% to govern the US-source share by default.

Here is the point older guidance routinely gets wrong: even for these countries, a fully remote director owes nothing. Sourcing comes first. A Toronto or Copenhagen director who does all board work from home has no US-source income (0%, not reportable), treaty or no treaty. What "unconditional" and "no-article" really mean is that once services are performed in the US, the US-source share has no treaty relief available: 30%, with no exemption to preserve in the first place.

The comparison at a glance

Why it matters

For a director covered by a conditional treaty, where board duties are physically performed has a direct dollar consequence: every US-performed day adds to the US-source share, which the treaty does not protect. That is not a reason to bend the facts. It is a reason to know them and plan around the real ones.

Two practical takeaways:

1. Plan deliberately. If a French (or German, UK, Belgian, Italian, Spanish) director's role can genuinely be carried out from abroad, fully remote board participation keeps the fee foreign-source. No withholding, no 1042-S. Once US presence enters the picture, the US-performed share is withheld at the full 30%. The treaty allocates, but it does not reduce the rate on that share.
2. Document the allocation. The outcome hinges on where services were performed, so keep contemporaneous records: meeting locations, attendance logs, calendars, a signed service-location statement. The foreign-source share of a split fee is only as defensible as the records behind the split. When the facts are unclear, the conservative default is to treat the disputed share as US-source until established otherwise.

US-source director fees are reported on Form 1042-S as compensation for independent personal services (income code 17; director's fees have no dedicated income code, and income code 24 is for qualified-investment-entity capital-gain distributions, not director's fees). The foreign-source share is not reported. A foreign individual director documents foreign status and any treaty claim on Form W-8BEN.

One footnote: the "inverted" treaties

A few conditional treaties (notably Mexico, Portugal, and Spain) phrase the condition in reverse, granting tax over fees for services performed outside the director's residence state. Read literally, that grant even reaches services performed in third countries. But US withholding attaches only to US-source income, so §861(a)(3) cuts the withholdable base back to the US-performed share regardless. The Mexico Technical Explanation says so in terms: the US taxes Mexican-resident directors of US corporations "only to the extent that the services are performed in the United States (and the remuneration is therefore sourced in the United States)." Same allocation, inverted grammar. For genuinely unusual fact patterns under these treaties, confirm the position with a qualified tax advisor.

This article is general information for US withholding agents, not legal or tax advice. Treaty positions turn on the payee's specific facts and the current treaty text. Confirm the analysis for your situation with a qualified tax advisor before relying on it.

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This article is for general educational purposes and is not legal or tax advice. Withholding outcomes depend on the specific facts of each payment. Consult a qualified tax professional before making withholding decisions.