Tax Treaty Provision (I) Presented by Christine ©

Agenda Certificate of Domicile (CoD) and Beneficial owner concept under tax treaty law Limitation of benefits article

CERTIFICATE OF DOMICILE (PER 61/2009 JO PER 24/2010) Pemotong/Pemungut Pajak harus menerapkan ketentuan dalam P3B apabila penerima penghasilan : 1)bukan Subjek Pajak dalam negeri Indonesia; 2)memenuhi persyaratan administratif untuk menerapkan ketentuan dalam P3B; dan 3)Tidak melakukan penyalahgunaan P3B sebagaimana diatur dalam Peraturan Direktur Jenderal Pajak Nomor PER-62/PJ/2009. Dalam hal salah satu persyaratan tersebut di atas tidak terpenuhi, Pemotong/Pemungut Pajak tidak diperkenankan menerapkan ketentuan dalam P3B.

Beneficial owner concept under tax treaty law The term ‘beneficial owner’ is adapted from the common law states. In most common law countries, there is a distinction between the legal title holder (‘legal ownership’) and the economical or equitable ownership related to the right of enjoying the benefits from certain assets (‘beneficial ownership’).[1] [1] Wim Eynatten, Kurt De Haen and Niko Hostyn, ‘The Concept of ‘Beneficial Owner’ under Belgian Tax Law: Legal Interpretation is Maintained’ (2003) 31 INTERTAX 12 at 526.

Beneficial owner concept under tax treaty law The initial use of that term in international tax jurisdiction was appeared in the Article III of the 1945 United Kingdom – United States treaty on the estates of deceased person, which states the following: “shares of stock held by a nominee where the beneficial ownership is evidenced by scrip certificates or otherwise”

Beneficial owner concept under tax treaty law The notion ‘beneficial owner’ was introduced in the 1977 OECD Model Convention on Income and Capital (“OECD Model”) and also the United Nations Model Double Taxation Convention (“UN Model”) between the Developed and Developing Countries under Article 10, 11, and 12 which deal with withholding tax on dividends, interests and royalties.

Beneficial owner concept under tax treaty law neither the OECD Model nor its Commentary (“OECD Commentary”) provides a clear definition of the term ‘beneficial owner’

Beneficial owner concept under tax treaty law Article 3 paragraph 2 of the OECD Model, which states the following: “As regards the application of the Convention at any time by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning that it has at that time under the law of that State for the purposes of the taxes to which the Convention applies, any meaning under the applicable tax laws of that State prevailing over a meaning given to the term under other laws of that State.”[1] [1] OECD Model 2003Article 3 paragraph 2. Please note that this paragraph also incorporated under Article 3(2) of the UN Model Double Taxation Convention 2001.

Interpretation of ‘beneficial owner’ concept: Indonesian tax perspective

Beneficial Owner Concept-1 SE-03/PJ.101/1996: dalam rangka penerapan ketentuan tax treaty, mewajibkan WPLN sebagai penerima penghasilan menunjukkan Surat Keterangan Domisili (Certificate of Domicile) yang diterbitkan oleh Tax Authority dari negara treaty partner  identitas diri bahwa ia adalah penduduk dari negara treaty partner.

Beneficial Owner Concept-2 SE-04/PJ.34/2005: tentang petunjuk penetapan kriteria “Beneficial Owner” Yang boleh menikmati pengurangan tarif PPh atas passive income (dividend, interest, royalty) beneficial owner (BO)dari penghasilan tsb.. Jika bukan BO PPh Ps. 26 : 20% dari jumlah bruto Beneficial Owner WP OP/Badan yang berhak sepenuhnya untuk menikmati secara langsung manfaat penghasilan tersebut Tidak termasuk SPV(Special Purpose Vehicle),contoh: conduit company, paper box company, dsb. Menekankan pada substance over form

Beneficial Owner Concept-3 SE-03/PJ.03/2008: tentang Penentuan status “Beneficial Owner” sebagaimana dimaksud dalam persetujuan penghindaran pajak berganda Beneficial Owner pemilik yang sebenarnya dari penghasilan berupa dividen, bunga dan/atau royalti, yang berhak sepenuhnya untuk menikmati secara langsung manfaat penghasilan-penghasilan tersebut.

Beneficial Owner Concept-3 PER 62/PJ/2009 jo PER 25/PJ/2010: PENCEGAHAN PENYALAHGUNAAN PERSETUJUAN PENGHINDARAN PAJAK BERGANDA Beneficial Owner Yang dimaksud dengan pemilik yang sebenarnya atas manfaat ekonomis dari penghasilan sebagaimana dimaksud dalam Pasal 3 huruf c adalah penerima penghasilan yang: bertindak tidak sebagai Agen; bertindak tidak sebagai Nominee; dan bukan Perusahaan Conduit.

Ilustrasi BO – Who is the beneficial owner? X Co Mauritius (Tax Haven) loan interest Seychelles (Tax Haven) Y Co loan interest Indonesia PT Z

Beneficial Owner Concept-3 Problem: How to prove it? Exchange of Information Mutual Agreement Procedure Is CoD enough?

Limitation on benefits article (LOB) LOB menurut Rohatgi: “tax treaty provision designed to restrict treaty benefits to persons who meet one or several tests. These tests may require minimum levels of local ownership or business activities in the country where residence is claimed for tax purposes. The person claiming the treaty benefits may also have to meet certain criteria to ensure that a treaty residents is not being used as a conduit company by third country residents.”

Limitation on benefits article (LOB) Terdapat di dalam US Model Double Taxation Convention Article 22  karakteristik utama dari P3B Amerika Serikat. Ketentuan ini untuk membatasi bahwa hanya resident yang sah (legitimate) yang berhak mendapatkan treaty benefits  untuk mencegah treaty shopping

Limitation of benefits article INA-USA Tax Treaty Article 28 (General rule of taxation) para. 6 & 7: Para 6: Except as provided in paragraph 7, a person (other than an individual) which is a resident of a Contracting State shall not be entitled under this Convention to relief from taxation in the other Contracting State unless: (a) more than 50 percent of the beneficial interest in such person (or in the case of a company, more than 50 percent of the number of shares of each class of the company's shares) is owned, directly or indirectly, by any combination of one or more of: (i) individuals who are residents of the United States; (ii) citizens of the United States; (iii) individuals who are residents of Indonesia; (iv) companies as described in paragraph 7(a); and (v) the Contracting States; and (b) the income of such person is not used in substantial part, directly or indirectly, to meet liabilities (including liabilities for interest or royalties) to persons other than those enumerated in subparagraphs (a)(i) through (v).

Para 7: The provisions of paragraph 6 shall not apply if: (a) the person is a company in whose principal class of shares there is substantial and regular trading on a recognized stock exchange; or (b) the establishment, acquisition and maintenance of such person and the conduct of its operations did not have as a principal purpose the purpose of obtaining benefits under the Convention.