International Tax Law Principles (II) CHRISTINE

Agenda Double Taxation Relief Non-discrimination Principle Anti Tax Avoidance Rule

How to relief double taxation? Yang menerapkan adalah residence country. Ada 3 metode untuk menangani residence-source conflict: Deduction Method deduction for taxes paid to a foreign government in respect of foreign-source income. Exemption Method exemption for foreign source income Credit Method  credit against taxes otherwise payable for income taxes paid to a foreign country.

Comparison of methods for relieving Double Taxation Deduction Method Credit Method Exemption Method Foreign-source income 100 Foreign tax (40%) 40 Deduction for foreign tax Nil Net Domestic Income 60 Domestic Tax before credit (50%) 30 50 Less: FTC nil Final Domestic Tax 10 Total Domestic and Foreign Tax 70

How to relief double taxation? (cont..) Pilih metode dan terapkan di dalam: Domestic tax laws  PPh Ps. 24 Tax Treaty Article 4  tie breaker rule (dual residents conflict) Article 23A and 23 B  exemption vs credit

How to relief double taxation? Kredit Pajak Luar Negeri Credit Method Per Country Limitation Principle Source Rule PPh yang dapat dikreditkan salah satunya adalah PPh pasal 24 Pasal 24: Ayat (1) Ayat (2) Ayat (3), Pasal 28

Tie Breaker Rule Dual- Residents Conflict Art. 4 OECD Model: Individual: Permanent home; Personal and economic relations are closer (centre of vital interests); Habitual abode; Nationality; Mutual agreement.

Tie Breaker Rule Dual- Residents Conflict Art. 4 OECD Model: Corporate/Company: Place of effective management

Conflict of Qualification Ex: dividend or interest? capital gain or business profit? How to resolve the conflict? Common definition may be resolve the conflict. If not  MAP

Non-discrimination Principle Diatur dalam Pasal 24 di dalam P3B (tax treaty) Mengatur bahwa suatu negara seharusnya memajaki non-residents, foreigners dan foreign-owned domestic corporations dengan cara yang sama atau functionally equivalent terhadap perlakuan perpajakan terhadap residents, citizens atau domestically-owned corporations dalam situasi yang hampir sama.

Non-discrimination Principle Mengatur bahwa orang-orang yang dilindungi dari perlakuan diskriminasi harus tidak diperlakukan kurang menguntungkan dalam transaksi-transaksi tertentu atau keadaan tertentu oleh salah satu negara dibandingkan penduduk atau warga negaranya sendiri nationality, PE, deduction, foreign controlled enterprises

Perlawanan terhadap pajak Tax Avoidance transactions or arrangements entered into by the taxpayer in order to minimize the amount of tax payable in a legitimate way, thus, it does not constitute the criminal offense Tax Evasion the reduction of tax by illegal means, usually involving fraudulent nondisclosure or willful deceit; therefore, it is punishable by criminal sanction (Brian J. Arnold & Michael J. McIntyre, International Tax Primer(2nd ed) (2002) at 81)

Anti Tax Avoidance Rule Debt to Equity Ratio Controlled Foreign Corporations (CFC) Rules Transfer Pricing & Thin Capitalization Rules Advance Pricing Agreement (APA) Hubungan Istimewa (Associated Enterprises) Pasal 18 Ayat (1) Ayat (2) Ayat (3), Ayat (3a) Ayat (4)