Conditional Director Fees: The 'All-or-Nothing' Rule, Explained with France

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June 27, 2026·7 min read·Tax Treaty Analysis

If your company pays a foreign person to sit on its board, the fee you pay is generally US-source income and the default US withholding rate is a flat 30% (IRC §1441/§1442). A tax treaty between the US and the director's home country can reduce that — but how it reduces it depends entirely on the exact wording of the treaty's Directors' Fees article (modeled on OECD Article 16).

There are several different patterns, and they produce very different results from identical facts. (For the full landscape, see our companion overview, The Six Structures of Director-Fee Treaties.) This article zooms in on one of the most consequential and most misunderstood: the conditional, or "all-or-nothing," rule. Roughly thirteen US treaties follow it — including Germany, France, the United Kingdom, Belgium, Italy, Spain, and Australia — and it contains a tax cliff that a single business trip can push a director straight off of.

The setup: where the words matter

Conditional-rule treaties share a tell-tale phrase. Their Directors' Fees article says that fees a resident earns "for services rendered in the other [i.e., the United States] State" may be taxed by that other State.

Read carefully, those words do two things at once:

• If the director performs no services in the US, the fee is not "for services rendered in the other State," so the US has no treaty right to tax it. Result: 0% withholding.
• If the director performs any services in the US, the fee falls within the US taxing right, and the treaty places no cap and no proportion on it. Result: the US default 30% applies to the entire fee.

There is no in-between. The treaty text is silent on splitting the fee between US and non-US activity, so there is nothing to prorate. It is genuinely all-or-nothing: zero, or the full statutory rate on the whole amount.

France, worked through with dollars

Meet Camille, a French resident who sits on the board of Meridian Audio Inc., a US company. Meridian pays her an annual board fee of $40,000. France's income-tax treaty with the US is a conditional treaty — its Directors' Fees article (Article 16) uses the "for services rendered in the other State" formulation.

Scenario A — Camille never sets foot in the US for board work. She attends every board meeting by video from Paris, reviews materials from France, and signs off on resolutions remotely. None of her director services are performed in the US.

Because no services were rendered in the United States, none of the $40,000 is within the US taxing right under Article 16. Withholding: 0%. Meridian withholds $0 and pays Camille the full $40,000 (assuming a valid Form W-8BEN claiming the France treaty is on file).

Scenario B — Camille flies to New York for one board meeting. Everything else is identical. She attends a single in-person meeting on US soil; the other meetings are still remote from France.

You might expect the US to tax only "the New York meeting's slice" of the fee. It doesn't. Under the conditional rule there is no slice — the moment any director services are performed in the US, the whole fee becomes US-taxable, and the treaty offers no rate reduction on it.

Because at least some services were rendered in the United States, the entire $40,000 falls within the US taxing right, with no treaty cap. Withholding: 30% of $40,000 = $12,000. Camille nets $28,000.

One meeting. A $12,000 swing on the same $40,000 fee. That is the cliff, and it is the single most important thing to understand about a conditional treaty: crossing from "no US services" to "some US services" doesn't nudge the rate up — it takes you from 0% on everything to 30% on everything.

What the all-or-nothing rule is not

The conditional rule sits between two neighboring patterns that look similar but behave very differently. Mixing them up will give you the wrong number.

It is not pro-rata

A small number of treaties — the Netherlands, Sweden, and Ukraine — use a different phrase: the fee is taxable "to the extent" the services are rendered in the US. Those three words change everything. They tell you to split the fee by the fraction of services performed in the US and apply 30% only to that fraction.

If Camille were instead a Dutch resident in Scenario B, and the New York meeting represented (say) 20% of her board work for the year, the US would tax 30% × 20% = 6% of the $40,000 — about $2,400, not $12,000. That is proration, and it exists only in the Netherlands/Sweden/Ukraine treaties.

France is not a pro-rata treaty. Do not split a French director's fee by US activity. Any US services trip the full 30%.

It is not unconditional

At the other end, some treaties tax board fees at 30% regardless of where the services are performed — even if the director never touches US soil. This is the unconditional pattern: the article says board fees "may be taxed" with no service condition at all. Denmark is an explicit example, and so are all the countries whose treaties have no Directors' Fees article — including Canada, Japan, China, and India — where the fee simply defaults to the 30% statutory rate with no treaty relief to claim.

For a director from one of those countries, Camille's careful "all-remote" arrangement in Scenario A would buy nothing: the fee is 30% whether she ever visits the US or not.

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, often large, dollar consequence. A single US board meeting can convert an entirely exempt fee into one taxed at 30% in full. That is not a reason to bend the facts — it is a reason to know the facts and to plan around the real ones.

Two practical takeaways:

1. Plan deliberately. If a French (or German, UK, Belgian, Italian, Spanish, Australian) director's role can genuinely be carried out from abroad, structuring board participation as remote keeps the fee in the 0% zone. If US presence is unavoidable, everyone should go in knowing the entire fee will be 30%-taxable — there is no partial relief to fall back on.
2. Document where services were performed. Because the outcome hinges entirely on the presence or absence of US-rendered director services, keep contemporaneous records — meeting locations, attendance logs, where work was actually done. If the question is ever raised, "no US services" is a factual claim you must be able to support. When in doubt, the conservative reading (treat the fee as US-taxable) is the safer default until the facts are clear.

These 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; confirm against the current instructions). A foreign individual director claims the treaty position on Form W-8BEN.

One caveat: the "inverted" treaties

A few treaties — notably Mexico, Portugal, and Spain — phrase the condition in reverse, taxing fees for services performed outside the residence state. The common-sense reading still taxes US-rendered services, but the unusual wording, and the treaties' silence on how to allocate, make these genuinely case-by-case. If you are paying a director resident in one of those countries, treat the position as one to confirm with a qualified tax advisor rather than applying the standard conditional logic by reflex.

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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.