Centre for Administrative ScienceFaculty of Social and Political Science

University of Indonesia

THE CONCEPT OF BENEFICIAL OWNER UNDER THE OECD MODEL CONVENTION, THE INDONESIAN DTA, OECD MODEL CONVENTION, THE INDONESIAN DTA,

DOMESTIC LAWS AND UP DATE

South- South Sharing of Successful Tax Practices

Beneficial Owner:Concept & It’s Relevant to DTA• As an anti-abuse measure in respect of Double Tax

Agreement (DTA) provisions, the clear meaning of the concept of Beneficial Owner (BO) is of a great relevance.

• The clarity, certainty, understandability, simply and practical applicability of the concept of BO may effectively avoid the granting of unintended treaty benefits to the untended taxpayers having arranged manoeuvres as such a manner by, e.g., using artificial legal constructions so as to benefit from the tax advantages available under the DTAs.

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Beneficial Owner:Concept & It’s Relevant to DTA

• In light of the possible loopholes existing in a given wording of the definition, regardless of no definition of the term BO explicitly stated in Art 3 of the OECD MC, the term BO explicitly stated in Art 3 of the OECD MC, the extensive proposed comments on the concept of BO under Arts 10, 11, and 12 of the OECD MC is of a great guidance for a State having extensive treaties network so as to promote, by relieving IDT, the movement of goods and services, capital, investment and human resources for the welfare of the people.

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The Concept of Beneficial Ownerin Indonesia & OECD Model Convention

• The formal legal concept of the Indonesian Beneficial Owner may be found in Art 26(1a) Income Tax Act and its Elucidation. This statutory concept has been elaborated by Circular SE- 03/Pj.03/2008 in conjunction with PER-61/PJ/2009 as amended by PER-24/PJ/2010 conjunction with PER-61/PJ/2009 as amended by PER-24/PJ/2010 and PER-62/PJ/2009 as amended by PER-25/PJ/2010.

• When the draft proposal on the clarification of the meaning of Beneficial Owner in the OECD Model Convention has already perfected and published, it is of a great relevance to adjust the Indonesian concept of BO in light of the clarity, certainty, understandably, ease of practical applicability, and internationally (especially within the DTA sphere) generally acceptable.

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Indonesia-Netherlands DTA:Some Lessons Learned

From the court sentence No Put 37308/PP/M.III/13/2012 Re:the appeal in respect of the application of Art 11 of the 2002 Indonesia-Netherlands DTA it appears that some lessons Indonesia-Netherlands DTA it appears that some lessons may be learned include:

a) that the substantive provision (Art 11(4)) shall prevail over the administrative procedural provision (Art 11(5));

b) the binding effect of the pacta sunt servanda principle in respect of DTA,

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Indonesia-Netherlands DTA:Some Lessons Learned (Cont’d)

c) the absence of mode of application may not prevent the binding effect of the substantive provision contained in Art 11(4) DTA,

d) the substantive concept of Beneficial Owner is of great d) the substantive concept of Beneficial Owner is of great relevance rather than the availability administrative procedures of the mode of application, and

e) when any provision in the DTA is found to be unsatisfactory it legally looks better to renegotiatethereof rather than introducing an implementing rule having no legal formal basis in the DTA.

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A Note To The Concept of Beneficial Owner

• Nevertheless, in all those cases regarding the concept of Beneficial Owner it would be very uneasy and burdensome for the Source State, like Indonesia, to technically-practically identify the Beneficial Owner in the other Resident States before she extends the DTA benefits, other Resident States before she extends the DTA benefits, without disclosures by the taxpayer or through the assistance and cooperation, including the exchange of information, between both of the Contracting States.

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Thank YouThank You

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