3/13/2017

International Taxation

DOUBLE TAX TREATIES

Week 2

Definition
 An agreement between two or more countries
for the avoidance of double taxation (of income
and capital)
 Objective:
 Avoiding double taxation, which would
otherwise arise from an international
transaction or event if each country imposed
its own tax on the same income or capital
 Allocating the tax imposed between the
governments that are parties to the DTA
 Preventing the evasion of taxation on those
international transactions or events

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Double Taxation
 Treaties provide for the distribution
between the treaty partners of the
right to tax which may be exclusive of
shared between the treaty partners
 Generally, treaties are primarily
concerned with the taxation of cross-
border income, although they may be
extended into taxation of capital (eg.
wealth and land taxes, inheritance,
estate and gift).

Prevention of Fiscal Evasion

 OECD Committee on Fiscal Affairs:
 The principal purpose of double tax conventions is to
promote, by eliminating international double
taxation, exchanges of goods and services, and the
movement of capital and persons. It is also a purpose
of tax conventions to prevent tax avoidance and
evasion.
 Articles for serving this purpose in OECD
Model:
 Article 9 – associated enterprises
 Article 26 – exchange of information, and
 Article 27 – assistance in the collection of taxes

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Prevention of Fiscal Evasion

 Art 9: adjustments to taxable income
in the respective contracting states
where a taxpayer engages in transfer
pricing in transactions between those
states.
 Purpose: to protect the revenue of
the country which was disadvantaged
as a result of the transfer pricing

Prevention of Fiscal Evasion

 Exchange of information: to allow the
tax administration of the contracting
states to obtain all the information
that they require to ensure that their
taxing rights are preserved.
 Art 27: to facilitate the collection of
tax to which a contracting state may
be entitled, but is unable to access
alone.

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History
 First, they appeared in Germany
 League of Nations when they
investigated the problem of juridical
double taxation
 1923: Report on Double Taxation was
submitted to the League’s Economic
and Financial Commission.
 1928 First draft model of DTA
 Mexico draft and London draft

History
 The United Nations: Organization for
European Economic Cooperation >>
Organization for Economic
Cooperation and Development
 1963: First draft OECD Model DTA
 1977 revision on the draft became
the standard for bilateral DTA
negotiation

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History
 1980 UN First model DTA which
followed the 1977 OECD Model but
granted greater taxing rights to
source states (i.e capital importing
and developing countries) particularly
in respect to the taxation of business
income and passive investment
income
 Prepare the proof for this statement!!

Status of OECD and UN model

double tax treaties
 Factors which led to the development of DTA:
 Disagreement on the appropriate provisions to be
inserted in bilateral DTAs as a policy matter
 Ambiguity of language selected in bilateral DTAs to
achieve the desired result.
 The aim of model DTA is to provide some
guidance to countries wishing to enter into
bilateral and multilateral DTA, and ideally to
minimize the complexity and compliance costs
of tax laws.
 There is, however, no binding requirement or
obligation to do so. Model DTAs are not
enforceable.

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Status (cont.)
 A model DTA is just a model on which real DTAs
negotiated between countries can be based. The
models are the starting points for the countries’
negotiation.
 The models are in no sense mandatory instruments
to be applied by members of the OECD or UN.
 Many articles envisage that each country is free to
apply its own domestic legislation and techniques in
practice and may deviate from the model in the
light of a country’s particular circumstances.

Pandangan yang berbeda

 Reservation: Pernyataan yang dibuat
oleh suatu negara untuk menyatakan
pandangan atau pendapat yang
berbeda terhadap ketentuan yang
diatur dalam Pasal tertentu
 Observation: Pernyataan yang dibuat
oleh suatu negara untuk menyatakan
pandangan atau pendapat yang
berbeda terhadap penjelasan
(commentaries) dari Pasal tertentu.

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Struktur OECD Model

 Introduction
 Model Perjanjian terhadap pemajakan
atas penghasilan dan modal
 Commentaries
 Posisi dari negara-negara OECD
ketika mempunyai
 Reservation
 Observation
 Posisi dari negara-negara non OECD

Text OECD model: 7 bab 31

Pasal
 Chapter I: Scope of the Convention
 Art 1 Persons covered
 Art 2 Taxes Covered
 Chapter II: Definitions
 Art 3 General definitions
 Art 4 Residents
 Art 5 Permanent establishment
 Chapter III: Taxation of Income
 Art 6 Income from Immovable property

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 Art 7: Business Profits

 Art 8: Shipping, inland waterways
transport and air transport
 Art 9: Associated Enterprise
 Art 10, 11, 12: Dividend, Interest,
Royalty
 Art 15: Income from Employment
 Art 16: Director’s fee
 Art 17: Artistes and sportsmen
 Art 18: Pensions
 Art 19: Government service
 Art 20: Students
 Art 21: Other income

 Chapter IV: Taxation of Capital

 Art 22: Capital
 Chapter V: Methods for Elimination of
Double Taxation
 Art 23A: Exemption method
 Art 23B: Credit Method
 Chapter VI: Special Provision
 Art 24: Non Discrimination
 Art 25: Mutual Agreement Procedure
 Art 26: Exchange of Information
 Art 27: Assistance in the collection of taxes
 Art 28: members of diplomatic mission
 Art 29: Territorial Extension

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 Chapter VII Final Provision

 Art 30: Entry into Force
 Art 31: Termination

Other Model
 The basis on which a country or a
group of countries formulate in DTAs
 US Model: reflects the interest of US to
preserve its taxing rights as a country of
residence.
 Multilateral Double Tax Treaties such as
the European Union (previously The
European Economic Community)
 Nordic Convention

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Other Model
 CARICOM Agreement 1994 was entered
into by 11 of the 14 member countries of
the Caribbean Community
 It is premised on the exclusivity of the
source state’s right to tax and prohibition
against the taxpayer’s state of residence
levying tax on a worldwide income basis.
Thus, double taxation does not arise
 Other multilateral double tax treaties

Relative Position
US Model OECD Nordic UN CARICOM
Model Conventio Model Agreement
n

Favours Favours
Residence source state
State

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Perjanjian Penghindaran Pajak

Berganda sebagai sumber hukum
 Melalui proses ratifikasi terlebih
dahulu
 Di Indonesia ratifikasi tidak melalui
persetujuan DPR melainkan hanya
dengan penerbitan Peraturan
Presiden (dulu Kepres) yang
diberitahukan ke DPR
 Ini pelanggaran Pasal 11 UUD NRI Th
1945

Benturan ketentuan domestik

dan P3B
 P3B mengikat para pihak
 Hakikat P3B adalah membatasi hak
pemajakan domestik
 P3B adalah bentuk kompromi
masing-masing negara yang
bersepakat
 Lex specialis

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Prosedur Penerapan P3B

 Mengetahui subjek pajak, objek pajak, dan
negara termasuk dalam cakupan P3B, dan
keberlakuan P3B (efektif atau tidak).
 Memastikan definisi penghasilan (masuk
substantive definition yang mana)
 Mengetahui negara mana yang akan diberi hak
pemajakan
 Hak pemajakan diberikan kepada satu negara
(biasanya kepada negara domisili) dengan frasa: “
shall be taxable only”
 Hak pemajakan diberikan juga kepada negara
sumber. Istilahnya: “may be taxed”

Prosedur Penerapan P3B

 Menghilangkan dampak pemajakan
berganda baik melalui exemption
method atau credit method
 Penyelesaian sengketa melalui Mutual
Agreement Procedure (MAP)

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Person covered
 Pasal 1 OECD Model: This convention
shall apply to persons who are
residents of one or both of the
contracting states
 Pengertian person: orang pribadi
(individual), badan (company) yaitu
badan hukum dan any entity treated
as body for tax purposes, dan
Kompulan orang pribadi atau badan
yang merupakan satu kesatuan

Person Covered
 Partnership: Badan atau bukan?
 Pasal 4(1) OECD Model: for the purpose
of this agreement, the term “resident of a
contracting state” means any person who,
under the laws of that contracting state, is
liable to tax therein by reason of his domicile,
residence, place of management, place of head
office, or any other criterion of a similar
nature”
 Liable to tax: subject to tax on
worldwide income

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Person covered
 Konsep resident berguna untuk:
 Menentukan subjek pajak dalam
perjanjian
 Menghilangkan pemajakan berganda sbg
akibat dual resident
 Menghilangkan pemajakan berganda
antara negara domisili dan sumber.
 Pasal-pasal substantif bisa diterapkan
hanya untuk resident. Khusus untuk
passive income perlu syarat beneficial
owner

Tie Breaker Rule

 Definisi tentang residen harus melihat ke UU Domestik.
 Where by reason of the provisions of paragraph 1 an individual is a
resident of both Contracting States, then his status shall be determined
as follows:
 he shall be deemed to be a resident only of the State in which he has a
permanent home available to him; if he has a permanent home available to
him in both States, he shall be deemed to be a resident only of the State
with which his personal and economic relations are closer (centre of vital
interests);
 if the State in which he has his centre of vital interests cannot be
determined, or if he has not a permanent home available to him in either
State, he shall be deemed to be a resident only of the State in which he has
an habitual abode;
 if he has an habitual abode in both States or in neither of them, he shall be
deemed to be a resident only of the State of which he is a national;
 if he is a national of both States or of neither of them, the competent
authorities of the Contracting States shall settle the question by mutual
agreement

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Tie Breaker Rule

 Where by reason of the provisions of
paragraph 1 a person other than an
individual is a resident of both
Contracting States, then it shall be
deemed to be a resident only of the
State in which its place of effective
management is situated.

Taxes Covered
 Taxes on income
 Khusus Indonesia – Korea Selatan:
mengatur juga PPN

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Territory or State Covered

 Untuk menentukan jurisdiksi wilayah
 Hong Kong Special Administrative
Region dan RRC
 Sejak 2010 Indonesia sudah ada P3B
dengan Hong Kong

Definisi Istilah
 Definisinya diatur dalam Pasal 3 ayat 1 OECD Model
 Definisinya tidak diatur dalam satu pasal tertentu tetapi
diatur dalam pasal-pasal lainnya
 Definisinya tidak diatur dalam Pasal tententu dan juga
tidak diatur dalam pasal-pasal lainnya. Interpretasinya
diatur di Pasal 3(2)
 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

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