Letter of Submittal

 MESSAGE
FROM
 THE PRESIDENT OF THE UNITED STATES
TRANSMITTING
THE CONVENTION BETWEEN THE GOVERNMENT OF THE
UNITED STATES OF AMERICA AND THE GOVERNMENT OF THE
REPUBLIC OF INDONESIA FOR THE AVOIDANCE OF DOUBLE TAXATION
AND THE PREVENTION OF FISCAL EVASION WITH RESPECT’ TO TAXES ON
INCOME, TOGETHER WITH A RELATED PROTOCOL AND EXCHANGE OF NOTES,
SIGNED AT JAKARTA ON JULY 11, 1988 

LETTER OF SUBMITTAL

DEPARTMENT OF STATE, Washington, July 28, 1988 

The PRESIDENT, The White House.

THE PRESIDENT: I have the honor to submit to you, with a view to its transmission to the Senate for advice and consent to ratification, the Convention between the Government of the United States of America and the Government of the Republic of Indonesia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, together with a related Protocol and exchange of notes, signed at Jakarta on July 11, 1988.

This is the first income tax agreement between the United States and Indonesia and is based on model income tax conventions published by the Organization for Economic Cooperation and Development (1977), the United Nations (1980) and the United States (1981), with adaptations to reflect the tax laws and treaty policies of the two countries. The Convention was to have been signed in April 1974. However,

This is the first income tax agreement between the United States and Indonesia and is based on model income tax conventions published by the Organization for Economic Cooperation and Development (1977), the United Nations (1980) and the United States (1981), with adaptations to reflect the tax laws and treaty policies of the two countries. The Convention was to have been signed in April 1974. However, signature of the convention was postponed pending agreement on a territorial definition of “Indonesia” in Article 3, paragraph 1(a). This problem was finally resolved by means of an agreed interpretation of Article 3(1)(a), in an exchange of notes, confirming the understanding that the United States recognizes the Indonesian archipelago and Indonesia respects

The Convention provides that business profits derived by a resident of the United States or Indonesia may be taxed by the other country only to the extent attributable to a fixed place of business (a “permanent establishment”) in that other country, and then on a net basis. Profits from international shipping and aircraft operations are exempt from tax at source reciprocally.

The rate of tax at source on dividends, branch profits, interest and royalties is limited in general to 15 percent of the gross amount, with exemption at source on interest paid to the other government or its agencies and instrumentalities, and a maximum rate of 10 percent on payments for the rental of certain equipment.

The Convention further provides that individuals who are residents of one country may be taxed by the other country on their income for personal services if they stay in the other country for 120 days or more in a twelve-month period or meet certain other conditions. Special provisions apply to entertainers, and special exemptions are provided for visiting students and teachers. Rules are also provided for the taxation of pensions and other income flowing from one country to the other.

The Convention assures non-discriminatory taxation and relief from double taxation and should, therefore, encourage investment in Indonesia and enhance the role of the private sector in Indonesian economic development. It also provides for exchanges of information and cooperation between the tax authorities of the two countries to avoid double taxation and prevent fiscal evasion. Special rules prevent abuse of the benefits of the Convention by residents of third countries.

The Protocol contains certain clarifications concerning taxation of income from the operation of ships and aircraft, the definition of “permanent establishment,” and tax on interest payments.

A technical memorandum explaining in detail the provisions of the Convention is being prepared by the Department of the Treasury and will be submitted separately to the Senate Committee on Foreign Relations.

The Department of the Treasury, with the cooperation of the Department of State, was primarily responsible for the negotiation of the Convention and the Protocol; and the Department of State was primarily responsible for negotiating the understanding reflected in the related exchange of notes. They have the approval of both Departments.

Respectfully submitted,

GEORGE P. SHULTZ.

LETTER OF TRANSMITTAL

THE WHITE HOUSE, August 5, 1988.

To the Senate of the United States:

I transmit herewith, for Senate advice and consent to ratification, the Convention between the Government of the United States of America and the Government of the Republic of Indonesia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, together with a related Protocol and exchange of notes, signed at Jakarta on July 11, 1988. I also transmit for the information of the Senate the report of the Department of State with respect thereto.

The Convention is the first tax treaty to be negotiated between the United States and Indonesia. It is based on model income tax conventions of the Organization for Economic Cooperation and Development, the United Nations, and the United States, with changes to reflect the tax laws and policies of the two countries.

It is most desirable that this Convention, together with the related Protocol and exchange of notes, be considered by the Senate as soon as possible and that the Senate give advice and consent to ratification.

RONALD REAGAN.

Leave a Reply

Your email address will not be published. Required fields are marked *