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Protocol amending the Convention between Canada and the Republic of Indonesia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital [1998] CATSer 29 (31 December 1998)

E103005 - CTS 1998 No. 14

PROTOCOL

Amending the Convention between Canada and the Republic of Indonesia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital.

The Government of Canada and the Government of the Republic of Indonesia, desiring to conclude a Protocol to amend the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital signed at Jakarta on January 16, 1979 (hereinafter referred to as “the Convention”), have agreed as follows:

Article I

The title and the preamble of the Convention shall be deleted and replaced by the following:

“CONVENTION BETWEEN THE GOVERNMENT OF CANADA 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

The Government of Canada and the Government of the Republic of Indonesia, desiring to conclude a Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, have agreed as follows:”

Article II

Article 2 (Taxes Covered) of the Convention shall be deleted and replaced by the following:

"Article 2

Taxes Covered

1. This Convention shall apply to taxes on income imposed on behalf of each Contracting State, irrespective of the manner in which they are levied.

2. There shall be regarded as taxes on income all taxes imposed on total income, or on elements of income, including taxes on gains from the alienation of movable or immovable property, taxes on the total amount of wages or salaries paid by enterprises, as well as taxes on capital appreciation.

3. The existing taxes to which the Convention shall apply are, in particular:

(a) in the case of Canada: the income taxes imposed by the Government of Canada, (hereinafter referred to as “Canadian tax”);

(b) in the case of Indonesia: the income tax imposed under the Undang-­undang Pajak Penghasilan 1984 (Law number 7 of 1983 as amended), (hereinafter referred to as “Indonesian tax”).

4. The Convention shall also apply to any identical or substantially similar taxes on income which are imposed by either Contracting State after the date of signature of this Convention in addition to, or in place of, the existing taxes. The competent authorities of the Contracting States shall notify each other of any substantial change which have been made to their respective taxation laws.”

Article III

1. Subparagraph 1 (a) of Article 3 (General Definitions) of the Convention shall be deleted and replaced by the following:

"(a) (i) the term “Canada”, used in a geographical sense, means the territory of Canada, including:

(A) any area beyond the territorial seas of Canada which, in accordance with international law and the laws of Canada is an area within which Canada may exercise rights with respect to the seabed and subsoil and their natural resources;

(B) the seas and airspace above any area referred to in subparagraph (A) in respect of any activity carried on in connection with the exploration for or the exploitation of the natural resources referred to therein;

"(ii) the term “Indonesia” comprises the territory of the Republic of Indonesia as defined in its laws and the adjacent areas over which the Republic of Indonesia has sovereign rights or jurisdiction in accordance with international law;”

2. Paragraph 1 of Article 3 (General Definitions) of the Convention shall be amended by adding thereto, immediately after subparagraph (h), the following subparagraph (i):

(i) the term “international traffic” means any transport by a ship or aircraft operated by an enterprise of a Contracting State, except where the operation of the ship or aircraft is solely between places in the other Contracting State.”

Article IV

Paragraph 1 of Article 4 (Fiscal Domicile) of the Convention shall be deleted and replaced by the following:

"1. For the purposes of this Convention, the term “resident of a Contracting State” means:

(a) any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature; and

(b) the Government of that Contracting State or a political subdivision or local authority thereof or any agency or instrumentality of any such government, subdivision or authority.

However, the term does not include a permanent establishment within the meaning of subparagraph c. of paragraph (3) of Article 2 of the Indonesian Law Number 7 of 1983 concerning income tax as amended.”

Article V

1. Subparagraph 2 (h) of Article 5 (Permanent Establishment) of the Convention shall be deleted and replaced by the following:

"(h) a building site, a construction, installation or assembly project or supervisory activities in connection therewith, where such site, project or activity continues for a period of more than 120 days;”

2. Subparagraph 2 (i) of Article 5 (Permanent Establishment) of the Convention shall be deleted and replaced by the following:

"(i) the furnishing of services, including consultancy services, by an enterprise through an employee or other person (other than an agent of an independent status within the meaning of paragraph 6) where the activities continue within a Contracting State for more than 120 days within any twelve month period.”

Article VI

1. Paragraph 2 of Article 8 (Shipping and Air Transport) of the Convention shall be deleted and replaced by the following:

"2. Notwithstanding the provisions of paragraph 1 and of Article 7, profits derived from the operation of ships or aircraft used principally to transport passengers or goods between places in a Contracting State may be taxed in that State.

3. The provisions of paragraph 1 shall also apply to profits derived by an enterprise from its participation in a pool, a joint business or in an international operating agency but only to so much of the profits so derived as is allocable to the participant in an international joint venture in proportion to its share in the joint operation.”

Article VII

Paragraph 2 of Article 10 (Dividends) of the Convention shall be deleted and replaced by the following:

"2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the laws of that State, but if the beneficial owner of the dividends is a resident of the other State, the tax so charged shall not exceed:

(a) 10 per cent of the gross amount of the dividends if the beneficial owner is a company which holds directly at least 25 per cent of the capital of the company paying the dividends;

(b) 15 per cent of the gross amount of the dividends in all other cases.

The provisions of this paragraph shall not affect the taxation of the company on the profits out of which the dividends are paid.”

Paragraph 2 of Article 11 (Interest) of the Convention shall be deleted and replaced by the following:

"2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the beneficial owner of the interest is a resident of the other State, the tax so charged shall not exceed 10 per cent of the gross amount of the interest.”

Article IX

1. Paragraph 2 of Article 12 (Royalties) of the Convention shall be deleted and replaced by the following:

"2. However, such royalties may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties is a resident of the other State, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties.”

2. The following sentence shall be added at the end of paragraph 3 of Article 12 (Royalties) of the Convention:

“However, the term does not include payments for the furnishing of technical services (such as studies or surveys of a scientific, geological or technical nature, engineering contracts including blueprints related thereto, and consultancy and supervisory services).”

Article X

Paragraphs 2 and 3 of Article 13 (Gains from the Alienation of Property) shall be deleted and replaced by the following:

"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 or of movable property pertaining to a fixed base available to a resident of a Contracting State in the other Contracting State for the purpose of performing professional services, including such gains from the alienation of such a permanent establishment (alone or with the whole enterprise) or of such a fixed base maybe taxed in that other State. However, gains from the alienation of ships or aircraft operated by an enterprise of a Contracting State in international traffic or movable property pertaining to the operation of such ships or aircraft, shall be taxable only in that Contracting State.

3. Gains derived by a resident of a Contracting State from the alienation of:

(a) shares of a company which is a resident of the other State the value of which shares is derived principally from immovable property situated in that other State; or

(b) an interest in a partnership, trust or estate, established under the law in the other State, the value of which is derived principally from immovable property situated in that other State,

may be taxed in that other State. For the purposes of this paragraph, the term “immovable property” includes the shares of a company referred to in subparagraph (a) or an interest in a partnership, trust or estate referred to in subparagraph (b).”

Article XI

Paragraph 1 of Article 14 (Professional Services) of the Convention shall be deleted and replaced by the following:

"1. Income derived by an individual who is a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that Contracting State unless he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities or he is present in that other Contracting State for a period or periods exceeding in the aggregate 120 days in any twelve month period. If he has or had such a fixed base or remains in that other Contracting State for the aforesaid period or periods, the income may be taxed in that other Contracting State but only so much of it as in attributable to that fixed base or is derived in that other Contracting State during the aforesaid period or periods.”

Article XII

Paragraphs 2 and 3 of Article 15 (Dependent Personal Services) of the Convention shall be deleted and replaced by the following:

"2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if the recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 120 days within any twelve month period, and either:

(a) the remuneration earned in the other Contracting State within the twelve month period does not exceed five thousand Canadian dollars ($5,000) or its equivalent in rupiah, or such other amount as is specified and agreed in letters exchanged between the competent authorities of the Contracting States; or

(b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and such remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State.

3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic by an enterprise of a Contracting State, shall be taxable only in that State unless the remuneration is derived by a resident of the other Contracting State.”

Article XIII

Paragraph 2 of Article 18 (Pensions and Annuities) shall be deleted and replaced by the following:

"2. Pensions arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in the State in which they arise, and according to the law of that State. However, in the case of periodic pension payments, other than payments under the social security legislation in a Contracting State, the tax so charged shall not exceed 15 per cent of the gross amount of the payment.”

Article XIV

Article 22 (Capital) of the Convention shall be deleted.

Article XV

1. Subparagraph (c) of paragraph 1 of Article 23 (Elimination of Double Taxation) of the Convention shall be deleted and replaced by the following:

"(c) Where in accordance with any provision of this Convention income derived by a resident of Canada is exempt from tax in Canada, Canada may nevertheless, in calculating the amount of tax on other income, take into account the exempted income.”

2. Subparagraphs 2 (a) and 2 (b) of Article 23 (Elimination of Double Taxation) of the Convention shall be deleted and replaced by the following:

"(a) Indonesia, when imposing tax on residents of Indonesia, may include in the basis upon which such taxes are imposed the items of income which according to the provisions of this Convention may be taxed in Canada.

(b) Subject to the provisions of subparagraph (c), Indonesia shall allow as a deduction from the tax computed in conformity with subparagraph (a) an amount equal to such proportion of that tax that the income which is included in the basis of that tax and may be taxed in Canada according to the provisions of this Convention bears to the total income which forms the basis for Indonesian tax.”

Article XVI

There shall be added to Article 28 (Miscellaneous Rules) of the Convention the following paragraphs 3, 4 and 5:

"3. The provisions of paragraph 6 of Article 10 shall not affect the provisions contained in any Contracts of Work and Production Sharing Contracts relating to the oil and gas sector or other mining sector negotiated by the Government of Indonesia, its instrumentality, its relevant state oil company or any other entity thereof with a person who is a resident of Canada.

4. Nothing in the Convention shall be construed as preventing a Contracting State from imposing a tax on amounts included in the income of a resident of that Contracting State with respect to a partnership, trust or controlled foreign affiliate in which the resident has an interest.

5. The Convention shall not apply to any company, trust or partnership that is a resident of a Contracting State and is beneficially owned or controlled directly or indirectly by one or more persons who are not residents of that State, if the amount of the tax imposed on the income of the company, trust or partnership by that State is substantially lower than the amount that would be imposed by that State if all of the shares of the capital stock of the company or all of the interests in the trust or partnership, as the case may be, were beneficially owned by one or more individuals who were residents of that State.”

Article XVII

1. CHAPTER IV, and its title, of the Convention shall be deleted and CHAPTERS V to VII shall become CHAPTERS IV to VI.

2. Articles 23 to 30 of the Convention shall become Articles 22 to 29.

3. The Protocol, signed at Jakarta the 16th day of January 1979, to the Convention shall be deleted.

Article XVIII

1. This Protocol shall be ratified and the instruments of ratification shall be exchanged as soon as possible.

2. The Protocol shall enter into force upon the exchange of the instruments of ratification and its provisions shall have effect in respect of taxable periods beginning on or after the first day of January of the year next following that in which the Protocol enters into force.

3. The provisions of the Protocol to the Convention signed at Jakarta on January 16, 1979, shall cease to have effect in respect of taxable periods beginning on or after the first day of January of the year next following that in which the Protocol enters into force.

IN WITNESS WHEREOF the undersigned, duly authorized to that effect, have signed this Protocol.

Done in duplicate at Jakarta this first day of April 1998 in the English, French and Indonesian languages, each version being equally authentic.

FOR THE GOVERNMENT OF CANADA

Gary J. Smith

FOR THE GOVERNMENT OF THE REPUBLIC OF INDONESIA

Fuad Bawazier