Wednesday, May 3, 2017

Protocol Indonesia - Netherland tax treaty ratified

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The government of Indonesia has just issued President Regulation Number 24 of 2017 (“PR-24”)  dated 6 March 2017 concerning Protocol Amending The Agreement Between The Government of The Republic of Indonesia (“GOI”) And The Government of The Kingdom of The Netherlands (“KON”) For The Avoidance of Double Taxation And The Prevention of Fiscal Evasion With Respect To Taxes On Income And Its Protocol, Signed at Jakarta on January 29, 2002

In the consideration part of PR-24 it is stated that GOI and KON signed protocol amending of the tax treaty and its previous protocol (signed in 2002) in Jakarta on 20 July 2005. It aims to enhance cooperation in the field of economy, trade, and investment between GOI and KON through the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income.   

Key points of the Protocol 

1. Lowering dividend withholding tax to 5%
The current tax treaty provides withholding tax at a rate of 10% applies to dividends paid or payable by an Indonesian tax resident taxpayer to a shareholder tax resident in the Netherlands. Under the new protocol, the withholding tax rate on dividend payments will be 5% if the shareholder owns at least 25% of the capital of the dividend paying company, 10% if the dividend is paid to a pension fund, and 15% in all other situations 

The reduced withholding tax rate  provides a competitive rate compared to other tax treaties entered into by Indonesia (for example 10% under the tax treaty with USA and 5% under tax treaty with Hongkong). It is an opportunity for KON’s investor to invest more in Indonesia  due to lower tax burden.

2. Interest on loans is subject to withholding tax of 5%
Under the current tax treaty, interest on loans made available for a period of more than two years is not taxable in the source state if the beneficial owner is a resident of the other state. The protocol, however, provides taxation in the source state up to 5 percent of such interest.

Although the withholding tax rate increases from 0% to 5%, the 5% withholding tax rate on interest is the lowest  withholding tax rate  under tax treaties entered into by Indonesia. (see the table below).



3. The exchange of information provision is replaced entirely.
The exchange of information clause is brought in line with the standards on exchange of information of the OECD. . It will cover information that is ‘foreseeable relevant’ to carry out the provisions of the treaty or to the administration or enforcement of domestic tax laws.

4. Assistance in the collection of taxes is inserted taxes
The protocol introduces assistance in the collection of any taxes if the relevant claim is more than EUR 1,500.

5. Interpretation of tax treaty  will refer  to OECD
To avoid misinterpretation of a term or provision it is agreed to interpret provisions of the tax treaty which are identical or in substance similar to the provisions of the OECD Model Tax Convention in accordance with the OECD Commentary thereon, including any subsequent revision. This new clause will provide more certainty on the application of the provisions of the tax treaty in particular to the term of  ‘beneficial owner’.




Below is the complete protocol.

Protocol amending the Agreement between the Government of the Kingdom of the Netherlands and the Government of the Republic of Indonesia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, and its Protocol, signed at Jakarta on January 29, 2002
The Government of the Kingdom of the Netherlands and the Government of the Republic of Indonesia,
Desiring to conclude a Protocol to amend the Agreement between the Government of the Kingdom of the Netherlands and the Government of the Republic of Indonesia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, and its Protocol, signed at Jakarta on January 29, 2002 (hereinafter referred to as “the Agreement”), Have agreed as follows:
Article 1
Paragraph 2 of Article 10 shall be replaced by the following paragraph:
“2. However, such dividends may also be taxed in the State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other State, the tax so charged shall not exceed:
a)5 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends; b)10 per cent of the gross amount of the dividends if the beneficial owner is a pension fund that is recognized and controlled according to the statutory provisions of one of the two States and the income of which is generally exempt from tax in the State according to whose statutory provisions it is recognized and controlled;
c)15 per cent of the gross amount of the dividends in all other cases.”.
Article 2
Paragraph 4 of Article 11 shall be replaced by the following paragraph:
“4. Notwithstanding the provisions of paragraph 2, interest arising in one of the two States may also be taxed in the State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other State and if the interest is paid on a loan made for a period of more than 2 years or is paid in connection with the sale on credit of any industrial, commercial or scientific equipment, the tax so charged shall not exceed 5 per cent of the gross amount of the interest.”.
Article 3
a) In paragraph 3 of Article 24 of the Agreement, the words “paragraph 1 of Article 16” shall be replaced by the words: “paragraphs 1 and 3 of Article 16”;
b) In paragraph 4 of Article 24 of the Agreement, the words “paragraph 2 of Article 11” shall be replaced by the words: “paragraphs 2 and 4 of Article 11”.
Article 4
Article 28 shall be replaced in its entirety by the following Article:
“Article 28
Exchange of information
1. The competent authorities of the two States shall exchange such information as is foreseeably relevant for carrying out the provisions of this Agreement or to the administration or enforcement of the domestic laws concerning taxes of every kind and description imposed on behalf of the two States, or of their political sub-divisions or local authorities, insofar as the taxation thereunder is not contrary to the Agreement. The exchange of information is not restricted by Articles 1 and 2.
2. Any information received under paragraph 1 by one of the two States shall be treated as secret in the same manner as information obtained under the domestic laws of that State and shall be disclosed only to persons or authorities (including courts and administrative bodies) concerned with the assessment or collection of, the enforcement or prosecution in respect of, the determination of appeals in relation to the taxes referred to in paragraph 1, or the oversight of the above. Such persons or authorities shall use the information only for such purposes. They may disclose the information in public court proceedings or in judicial decisions.
3. In no case shall the provisions of the previous paragraphs be construed so as to impose on either State the obligation:
a)to carry out administrative measures at variance with the laws and administrative practice of that or of the other State;
b)to supply information which is not obtainable under the laws or in the normal course of the administration of that or of the other State;
c)to supply information which would disclose any trade, business, industrial, commercial or professional secret or trade process, or information the disclosure of which would be contrary to public policy (ordrepublic).
4. If information is requested by one of the two States in accordance with this Article, the other State shall use its information gathering measures to obtain the requested information, even though that other State may not need such information for its own tax purposes. The obligation contained in the preceding sentence is subject to the limitations of paragraph 3 but in no case shall such limitations be construed to permit either State to decline to supply information solely because it has no domestic interest in such information.
5. In no case shall the provisions of paragraph 3 be construed to permit either State to decline to supply information solely because the information is held by a bank, other financial institution, nominee or person acting in an agency or a fiduciary capacity or because it relates to ownership interests in a person.”.
Article 5
The following Article shall be inserted after Article 28 of the Agreement:
“Article 28A
Assistance in the collection of taxes
1. The two States shall lend assistance to each other in the collection of revenue claims. This assistance is not restricted by Articles 1 and 2. The competent authorities of the two States may by mutual agreement settle the mode of application of this Article. No request for assistance may be made if the total amount of the relevant claim is less than EUR 1,500.
2. The term “revenue claim” as used in this Article means an amount owed in respect of taxes of every kind and description imposed on behalf of the States, insofar as the taxation thereunder is not contrary to this Agreement or any other instrument to which the States are parties, as well as interest, administrative penal-ties and costs of collection or conservancy related to such amount.
3. The provisions of this Article shall apply only to a revenue claim that forms the subject of an instrument permitting enforcement in the applicant State and, unless otherwise agreed between the competent authorities, that is not contested. However, where the claim relates to a liability to tax of a person as a non-resident of the applicant State, this Article shall only apply, unless otherwise agreed between the competent authorities, where the claim may no longer be contested. The revenue claim shall be collected by that other State in accordance with the provisions of its laws applicable to the enforcement and collection of its own taxes as if the revenue claim were a revenue claim of that other State.
4. When a revenue claim of a State is a claim in respect of which that State may, under its law, take measures of conservancy with a view to ensure its collection, that revenue claim shall, at the request of the competent authority of that State, be accepted for purposes of taking measures of conservancy by the competent authority of the other State. That other State shall take measures of conservancy in respect of that revenue claim in accordance with the provisions of its laws as if the revenue claim were a revenue claim of that other State even if, at the time when such measures are applied, the revenue claim is not enforceable in the first-mentioned State or is owed by a person who has a right to prevent its collection.
5. Notwithstanding the provisions of paragraphs 3 and 4, a revenue claim accepted by a State for purposes of paragraph 3 or 4 shall not, in that State, be subject to the time limits or accorded any priority applicable to a revenue claim under the laws of that State by reason of its nature as such and, unless otherwise agreed between the competent authorities, cannot be collected by imprisonment for debt of the debtor. In addition, a revenue claim accepted by a State for the purposes of paragraph 3 or 4 shall not, in that State, have any priority applicable to that revenue claim under the laws of the other State.
6. Proceedings with respect to the existence, validity or the amount of a revenue claim of a State shall not be brought before the courts or administrative bodies of the other State.
7. Where, at any time after a request has been made by a State under paragraph 3 or 4 and before the other State has collected and remitted the relevant revenue claim to the first-mentioned State, the relevant revenue claim ceases to be
a)in the case of a request under paragraph 3, a revenue claim of the first-mentioned State that is enforce-able under the laws of that State and is owed by a person who, at that time, cannot, under the laws of that State, prevent its collection, or
b)in the case of a request under paragraph 4, a revenue claim of the first-mentioned State in respect of which that State may, under its laws, take measures of conservancy with a view to ensure its collection, the competent authority of the first-mentioned State shall promptly notify the competent authority of the other State of that fact and, at the option of the other State, the first-mentioned State shall either suspend or withdraw its request.
8. In no case shall the provisions of this Article be construed so as to impose on a State the obligation:
a)to carry out administrative measures at variance with the laws and administrative practice of that or of the other State;
b)to carry out measures which would be contrary to public policy (ordre public); c)to provide assistance if the other State has not pursued all reasonable measures of collection or conservancy, as the case may be, available under its laws or administrative practice; d)to provide assistance in those cases where the administrative burden for that State is clearly disproportionate to the benefit to be derived by the other State.”.
Article 6
The following Article shall be inserted before Article I of the Protocol to the Agreement:
“General
Subject to any reservations, observations or positions as the case may be to the OECD Model Tax Convention or its Commentary made by either State, the two States shall interpret the provisions of the Agreement which are identical or in substance similar to the provisions of the OECD Model Tax Convention on Income and on Capital, in accordance with the OECD Commentary thereon at the moment of signing the Agreement and any subsequent clarifying modifications of such Commentary. Especially, the two States shall interpret the term ‘beneficial owner’ used in the Agreement in accordance with the interpretation thereof as published by the OECD at the moment of signing the Agreement and any subsequent clarifying modifications of such OECD interpretation.”.
Article 7
The following Article shall be inserted after Article X of the Protocol to the Agreement:
 “XI
With reference to Article 28
The provisions of Article 28 shall also apply accordingly to information that is foreseeable relevant for carrying out income-related regulations if the Netherlands tax administration is in charge of implementing and enforcing such income-related regulations. Information received under this Protocol shall be used only for the purpose of levying the contributions, granting the benefits or determining the extent of these contributions and benefits derived from income-related regulations.”.
Article 8
Article VIII of the Protocol to the Agreement shall be replaced by:
“1. Where tax has been levied at source in excess of the amount of tax chargeable under the provisions of Articles 10, 11 and 12, applications for the refund of the excess amount of tax have to be lodged with the competent authority of the State having levied the tax, within a period of three years after the expiration of the calendar year in which the tax has been levied.
2. It is understood that no mutual agreement on the mode of application of Articles 10, 11 and 12, is required for the application of these Articles.”.
Article 9
This Protocol shall form an integral part of the Agreement, and its Protocol.
Article 10
Each State shall notify to the other the completion of the procedures required by its law for the bringing into force of this Protocol. It shall enter into force on the first day of the second month following the later of the dates on which the respective Governments have notified each other in writing through diplomatic channels. The provisions of this Protocol shall for the first time have effect for amounts paid or credited on or after the first day of the second month next following the date on which the Protocol enters into force.
IN WITNESS WHEREOF the undersigned, being duly authorised thereto by their respective Governments, have signed this Protocol.
DONE at Jakarta this 30th day of July 2015, in duplicate, in the English, Netherlands and Indonesian languages, the three texts being equally authentic. In the event of there being a divergence in the interpretation and the application of this Protocol, the English text shall prevail.
For the Kingdom of the Netherlands,
ROB SWARTBOL
For the Republic of Indonesia,
SUAHASIL NAZARA



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