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Abstract

The Indonesia-Netherlands Double Taxation Agreement (“DTA”) has been renegotiated and amended several times until the latest amendment which was made in 2015 whereby a new protocol was produced. What is interesting about this new protocol is the requirement to refer to the OECD Commentary in interpreting the DTA articles that are identical and similar to OECD Model, especially in relation to the term “Beneficial Owner”. Over the last two decades, the usage of Dutch SPVs in financing structure have triggered many tax disputes between the Tax Authority in Indonesia (the Directorate General of Taxation or “DGT’) and the Indonesian taxpayer. The DGT would typically reject the treaty benefit for using WHT exemption for interest payment and impose the 20% WHT rate instead. However, it is in the core interests of the Dutch to maintain its position of being the hub for investors to enter into the European financial market, and therefore it is of much importance for it to secure favorable treaty provisions ,despite the fact that the WHT rate on interest payment has since been amended to 5%. On the other hand, we are all aware that the Commentary is designed as a reference in interpreting the treaty, and shall not be the legal binding instrument, as expressed by the Committee on Fiscal Affairs. On this basis, most of the scholars view that there is no legal binding status of the Commentary to parties signing the DTA. The VCLT (Vienna Convention on the Law of Treaties), though, requires good faith in the interpretation of the treaties, and Indonesia’s position on how to interpret the treaty should pave the way for us to recognize that there is no such rejection on referring to the Commentary in interpreting the DTAs.

References

Books

Douma, Sjoerd., Engelen, Frank. “The legal Status of the OECD Commentaries”, Conflict of Norms in International Tax Law Series Volume 1, IBFD, 2008.

Lang, Michael., et. al “Beneficial Ownership: Recent Trends” IBFD, 2013

OECD Model Convention. “Double Taxation Conventions and the Use of Conduit Companies”, 2015.

OECD Model Convention. “International Tax Avoidance and Evasion”, Washington, D.C: OECD Publications and Information Centre, 1987.

OECD, “Commentary on Article 1”, Model Tax Convention on Income and on Capital: Condensed Version 2017, OECD Publishing: Paris, 2017

Vogel, Klaus. “Double Taxations Conventions”, Vol 1 dan 2, Deventer: Kluwer, 2015.

Article / Journals

Aidha, Nurul C & Maftuchan, et al, “How the Indonesia-Netherlands tax treaty enables tax avoidance - An analysis of the treaty and Indonesian court decisions on corporate tax disputes”, Perkumpulan Prakarsa dan SOMO, August 2019.

Arnold, Brian J. “Tax Treaty News: More on Beneficial Ownership”, Bulletin For International Taxation, 2009.

Baker, Philip. “Beneficial Ownership: After Indofood”, Vol. VI, No. 1, 2007.

Canadian Legal Information Institute. Prevost Car Inc. v. The Queen, 2008 TCC 231, 2008.

Gouthière, B. “Beneficial Ownership and Tax Treaties: A French View”, Vol. 65, No. 4/5, 2011.

GLUKH, Maryna, “The OECD Model Tax Convention and its commentaries as a source of interpretation of double taxation treaties in Ukraine”, Juridical Tribune Volume 11, Issue 2, June 2021.

Houben, Wendy MCP and Drijer, H Hans, “The New Income Tax Treaty with the Netherlands in Practice”, IBFD-Asia Pacific Tax Bulletin, 2004.

Jezzi, P. Laroma. “The Concept of Beneficial Ownership in The Indofood and Prévost Car Decisions”, Vol. 64, No. 5, 2010.

Li, Jinyan. “Beneficial Ownership in Tax Treaties: Judicial Interpretation and The Case for Clarity”, No. 4, 2012.

R. Fraser., D. Oliver. “Beneficial Ownership: HRMC’s graft guidance on interpretation of the Indofood decision”, British Tax Review, 2007.

Toit, C. du. “The Evolution of the Term “Beneficial Ownership” in Relation to International Taxation over the Past 45 Years”, Vol. 64, No. 10, 2010.

Toit, C.P. du. “Beneficial Ownership of Royalties in Bilateral Tax Treaties”, Amsterdam: IBFD, 1999.

Regulations / Court Decisions

Indonesia, Law 7 Year 2021 Regarding the fourth amendment of the Law No. 7 Year 1983 on Income Tax.

Indonesia, Presidential Regulation No. 24 Year 2017 concerning The Ratification of Protocol Amending the Agreement between the Government of The Republic of Indonesia and the Government of the Kingdom of The Netherlands 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.

Indonesia, the Directorate General of Taxes Decree No. SE-17/PJ/2005 concerning Instruction on Treatment of Income Tax on Article 11 Regarding Interests in the Avoidance Of Double Taxation Agreement (P3B) between Indonesia and the Netherlands.

Indonesia, the Directorate General of Taxes Decree No. PER-61/PJ/2009 concerning Procedure for the Application of Agreement on Double Taxation Avoidance and Regulation of Directorate of General Tax No. PER-62/PJ/2009 concerning Prevention of the Misuse of Agreement on Double Taxation Avoidance.

Indonesia, the Directorate General of Taxes Decree No. PER-10/PJ/2017 concerning Procedure For the Application of Agreement on the Avoidance of Double Taxation

Indonesia, The Supreme Court Decision No. 2666/B/PK/PJK/2020 date 26 August 2020, No. 2697/B/PK/ PJK/2020 dated 26 August 2020, and No. 2748/B/PK/PJK/2020 dated 26 August 2020.

Indonesia, the Director General of Taxes Decree No. 52/PJ/2021 regarding General Guidelines on the Inter- pretation, and Implementation of Provisions in DTA dated 21 December 2021

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