Pajak Internasional

DDTC Academy
AGENDA
1 Permanent Establishment (Art. 5)

2 Capital Gains and Immovable Property

Meaning of ‘profits’

Article 7

Article 7(4)

Article 10, 11, 12

Reference back to
Art 7

3
What is Contracting State and other Contracting State?

• Contracting State = shall be

PT Indonesia taxable only
• Who is Contracting State?

Indonesia
• Other Contracting State =
Australia may be taxed
• Who is other Contracting
State?

Carries on
business

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What is Contracting State and other Contracting State?

• The profits of an enterprise of a Contracting State [INDONESIA] shall

be taxable only in that State (…)

• unless the enterprise carries on business in the other Contracting

State [AUSTRALIA] through a permanent establishment situated
therein.

• If the enterprise carries on business as aforesaid, the profits of the

enterprise may be taxed in the other State [AUSTRALIA] but only so
much of them is attributable to that permanent establishment

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Art 7(1) Section 1 – Allocation rule

Residence State Source State

(INDONESIA) (AUSTRALIA)

PE
Enterprise
(Carries on
(PT INDONESIA)
business)

MAIN RULE: EXCEPTION:

Taxation only in the Unless PE

Residence State
Threshold that must be passed before
Source State is allowed to tax a foreign
enterprise on profits from activities in
its territory

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Art 7(1) Section 2 – Attributable profits

Residence State Source State

(INDONESIA) (AUSTRALIA)

PE
Enterprise
(Carries on
(PT INDONESIA)
business)

PE Profits may be taxed

Article 23
Double Taxation Relief Only as much attributable
to PE

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Art 7(1) Section 2 – Attributable profits

OECD MODEL UN MODEL : Force of attraction

ENTERPRISE ENTERPRISE

STATE A
STATE B Profits
attributable
to sales of
Similar activities products in Sales of
State B
products

Profits
PE
attributable Profits
PE Profits
to attributable
attributable
to similar
to
activities

8
Art 7(1) Role of PE

Residence State Source State

(INDONESIA) (AUSTRALIA)

PE
Enterprise
(Carries on
(PT INDONESIA)
business)

Art 7 (1): Source

Art 5: Definition
State May Tax if Art 7: Allocation
of permanent
business activity rule
establishment
constitute a PE

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Art. 5 - Concept of PE

For the purpose of this Convention, the

term“permanent establishment” means a fixed place
of business through which the business of the
enterprise is wholly or partly carried on”

10
Art. 5 - Concept of PE

Place of business

At the disposal of
Wholly or partly
the enterprise

Basic definition of a PE

Through which the

Fixed
business is carried
(geographically)
on

Fixed
(permanence)

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Place of business test

Bank account Office cubicle

12
Location test (fixed geographically)

Satellite Boat restaurant

13
Permanence test (fixed duration)

Market pitch Travelling circus

14
Business test

Amazon
(Amerika)

Jual beli
Amerika Pengiriman buku

Indonesia

Pesan buku + pembayaran online

Pelanggan
(INDONESIA)
Server
(Singapura)

Singapura
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Preparatory & Auxiliary activities

Jasa maklon
Luis Vuitton PT. Maklon
(Perancis) 10,000 US$ fee atas jasa maklon (Indonesia)

Jual beli

Toko butik Diproses

Kirim barang (delivery)
menjadi
Luis Vuitton Barang jadi
(Singapura) (milik LV)

Art 5 (4) OECD MC 2010 v UN MC

16
Types of PE
Definition of art. 5

OECD Model UN Model

Basic rule PE Basic rule PE

Para. 1 & 2 Para. 1 & 2
Construction PE Construction PE
Para. 3 Para. 3a
Agency Services
Para. 5 Para. 3b
Agency
Para. 5
Insurance PE
Para. 6

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Time test Art 5 (3)
• Construction PE
• 3(a) A building site, a construction, assembly or
installation project or supervisory activities in
connection therewith, but only where such site,
project or activities continue for a period of
more than six months;
• Services PE
• 3(b) The furnishing of services, including
consultancy services, by an enterprise
through employees or other personnel
engaged by the enterprise for such purpose,
but only if activities of that nature continue
(for the same or a connected project) within a
Contracting State for a period or periods
aggregating more than 183 days in any 12-
month period commencing or ending in the
fiscal year concerned.
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Time test

Time threshold Commencement Computation Ending

Step 1 : Check Time Threshold in the relevant treaty

- Generally 6 months or 183 days in treaties concluded by Indonesia

- OECD Model = 12 months period

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Time test

Time threshold Commencement Computation Ending

Step 2 : Commencement

OECD Commentary on Art 5 para 19:

A site exists from the date on which the contractor begins his work, including any
preparatory work, in the country where the construction is to be established, e.g.
if he installs a planning office for the construction.

20
Time test

Time threshold Commencement Computation Ending

Step 3 : Computation

a) Interruption
b) Subcontractors
c) Individual projects
d) Interpretation issue of day vs month

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Time test: Interruptions

Commence 1 Continue Continue

Jan 1 June 1 Nov

Interruption Interruption End 31 Nov

due to bad due to lack of
weather workforce
31 March and raw
materials
31 July

Effective work 3 + 2 + 1 = 6 months

Total duration = 6 months work + 5 months interruptions = 11 months

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Time test: Subcontracting

1 months for
Main Contractor construction of
foundation

Sub contractor Sub contractor

3 months for 2 months for

construction of the finishing the overall
building construction
23
Time test: Individual projects

Project A Project B

1/1 31/3 1/7 31/9 31/12

TIMELINE

Project A and Project B are unconnected projects

(not coherent commercially and geographically)

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Time test: Interpretation issue of day vs. month

Inconsistency in Art 5 (3) b UN Model based treaties (Services PE)

183 Days Months 6

Solar days or man days? Lunar month or calendar month?
Part of a day = 1 day? Part of a month = 1 month?

Interpretation background:

Art 31 Vienna Convention on the Law of treaties (VLC):

(1) A treaty shall be interpreted in good faith in accordance with the ordinary
meaning to be given to the terms of the treaty in their context and in the light of
its objects and purpose.

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Time test: Interpretation issue of day vs. month

Clifford Chance, UK v. DCIT (Mumbai ITAT)

Maharashtra State Electricity (Mumbai ITAT)

Presence Solar days Amount of Man days

employees
1 March – 20 March 20 3 60
16 April – 30 April 15 2 30
1 May – 20 May 20 4 80
Total 55 170

ordinary meaning of “day”:

“the time for one rotation of the earth on its axis; the period of 24
hours as a unit of time, esp. from midnight to midnight”
Shorter Oxford English Dictionary

26
Time test

Time threshold Commencement Computation Ending

Step 4 : Ending

OECD Commentary on Art 5 para 19:

In general, it continues to exist until the work is completed or permanently

abandoned.

→ Workers as well as raw materials

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Agency PE

Principal
Individual or company

or
Residence State

Source State
“A person”

Acts on behalf of an enterprise

Has and habitually exercises (…) an authority to conclude

contracts

28
Agency PE

1 • A person acting on behalf of an

enterprise (dependent agent)

2 • Has an authority to conclude

contracts

3 • Habitually exercises its authority

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AGENDA
1 Permanent Establishment (Art. 5)

2 Capital Gains and Immovable Property

Capital Gains

CAPITAL GAINS

1.Definition issues with dividends (same issues as dividends)

2.Interest received by PE’s (same issue as dividends)

3.Sourcing rules : “arising in” vs. “paid to”

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Capital Gains

Artikel 13 ‘Capital Gain’ tidak

memberikan definisi

Penekanan berada pada terminologi

‘alienation of property’
Commentaries on art 13 OECD Model
Convention paragraph 5

Art 13 mengatur hak pemajakan berdasarkan jenis-

jenis property, yaitu:

Ayat 1: immovable property

Ayat 2: movable property forming part of a PE
Ayat 3: Ships or aircraft
Ayat 4: Shares deriving value from immovable property
Ayat 5: Any other property

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Capital Gains: Immovable Property

Art 13 (1)
Gains derived by a resident of a Contracting State from the alienation of immovable
property referred to in Article 6 and situated in the other Contracting State may be
taxed in that other State.

owner
owner

STATE R STATE R
Capital gain STATE S Capital gain STATE S

Purchaser Purchaser

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Capital Gains: Immovable Property

3rd STATE R-S Treaty

▪ Article 13 (1) not applicable; and
owner ▪ Article 13 (5): only R State may tax
the gain

R-3rd State Treaty

▪ Article 13 (1): 3rd State may tax the
STATE R
gain; and
Capital gain STATE S ▪ Article 13 (1) jo Article 23: R State
may tax the gain but must grant relief

S-3rd State Treaty

▪ Not applicable
Purchaser

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Capital Gains: Permanent Establishment
Art 13 (2)
Gains from the alienation of movable property forming part of the business property of a
permanent establishment which an enterprise of a Contracting State has in the other
Contracting State, including such gains from the alienation of such a permanent
establishment (alone or with the whole enterprise), may be taxed in that other State.

R. Co R. Co

STATE R STATE R

STATE S STATE S

Movable
PE PE property

Art 13(1) PE and movable property in

the other Contracting State
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Capital Gains: Ships and Aircraft

Art 13 (3) “Place of effective management”

Ships & Aircraft

Should be determined based on facts

and circumstances.

SUBSTANCE

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Art 13 (4) Anti-Avoidance

West Co. West Co.

Penjualan “immovable
property” Penjualan saham

Immovable
property
Local Co

Immovable
property

Art 13 (1) Art 13 (5)

Taxing right to the State where the Taxing right to the State where the
immovable property is located alienator is resident
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Art 13 (4) Anti-Avoidance

Art 13 (4)
Gains derived by a resident of a Contracting State from
the alienation of shares deriving more than 50 per cent
of their value directly or indirectly from immovable
property situated in the other Contracting State may be
taxed in that other State

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Art 13 (5) Alienation of Other Property

Gains from the alienation of any property, other than that

referred to in paragraphs 1, 2, 3 and 4, shall be taxable only in
the Contracting State of which the alienator is a resident.

Examples:
- Shares
- Securities
- Bonds
- Debentures

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