Introduction to International Taxation

8/16/2019 Introduction to International Taxation

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INTRODUCTION TO THE

INTERNATIONAL TAXATION

IMAN SANTOSO

Partner PSS Consult – Ernst & Young Indonesia

Lecturer –

University of Indonesia


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AGENDA

INTRODUCTION

INTERNATIONAL DOUBLE

TAXATION TAX TREATY MODELS

OBJECTIVES

CONTENTS PROCESS


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INTRODUCTION

GLOBALIZATION AND ITSCONSEQUENCES

DTA AS A COOPERATION

NETWORK BETWEEN TWOCOUNTRIES IN THE AREAOF TAXATION

DTA IS A BILATERAL ARRANGEMENT FORDETERMINING TAXATIONRIGHTS

INCOME & NATIONAL TAXCOVERED


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INTERNATIONAL DOUBLE

TAXATION

YURIDICAL DOUBLE TAXATION

The imposition of tax by 2 (ormaybe more) tax administrators forthe same subject on the similar tax

object during the identical taxperiod.

ECONOMICAL DOUBLETAXATION

The imposition of tax by 2 (ormaybe more) tax administrators forthe different tax subjects on thesimilar tax object during theidentical tax period.


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TRIGERRING FACTORS

Conflict of residence

Dual citizenship (iussanguinis vs ius soli)

Different tax principle

(domicile vs nationalityprinciple)

Source rule discrepancy

Remember 3 elementsof taxation that may

cause internationaldouble taxation, both juridical andeconomical!


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HOW TO AVOID?

Unilateral

Double Tax

Agreement (TaxTreaty): Bilateral

or Multilateral

TaxHarmonization


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DTA MODELS

No DTA Models Main Principles

1. OECD Convention

Model

The primary taxing rights is given to the resident

country. Used as reference for OECD countries

2. UN Model Sharing of taxation rights between the resident and

source countries

3. US Model Used as reference for USA in dealing with other

countries

4. Nordic ConventionModel

Follows OECD model with some adjustmentsmodified in accordance with the Nordic taxation

system

5. Andean Pact The primary taxing rights is given to the source

country. Mainly used by South Americans


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OBJECTIVES

TO AVOID DOUBLETAXATION

TO PREVENT TAX EVASION

TO PROTECT THETAXPAYERS

TO ATTRACT FOREIGNINVESMENTS

TO ENCOURAGE TRANSFEROF SKILLS, KNOWLEDGES,

AND KNOW HOW

TO ENHANCE ECONOMICCOOPERATION

TO ASSIST TAXCOLLECTION


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CONTENTS OF DTA

No. Contents Description in DTA’s Article

1. Subject of

agreement

Personal scope

2. Object of

agreement

Taxes covered

Types of income on which the taxing rights

is shared

3. Territory Definition of tax jurisdiction where the DTA is

binding

4. Period of

application

Entry into force & termination


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SUMMARY OF DTA

TITLE AND PREAMBLE

CHAPTER I : SCOPE OF THE CONVENTION

Article 1 : Personal Scope

Article 2 : Taxes Covered

CHAPTER II : DEFINITIONS

Article 3 : General Definitions

Article 4 : Resident Article 5 : Permanent establishment

CHAPTER III : TAXATION OF INCOME

Article 6 : Income from Immovable Property

Article 7 : Business Profits

Article 8 : Shipping, Inland Waterways Transport & Air Transport

Article 9 : Associated Enterprises

Article 10 : Dividend

Article 11 : Interest

Article 12 : Royalty (and Technical Services)

Article 13 : Capital Gains

Article 14 : Independent Personal Services

Article 15 : Dependent Personal Services

Article 16 : Directors’ Fees

Article 17 : Artistes, Entertainer & Sportsmen

Article 18 : Pensions

Article 19 : Government Services

Article 20 : Students & Apprentices

Article 21 : Teachers & Researchers

Article 22 : Other Income (Income Not Expressly Mentioned)

CHAPTER IV : TAXATION OF CAPITAL

Article 23 : Capital

CHAPTER V : METHODS FOR ELIMINATION OF DOUBLE

TAXATION

Article 24A : Exemption Method

Article 24B : Credit Method

CHAPTER VI : SPECIAL PROVISIONS

Article 25 : Non-Discrimination Clause

Article 26 : Mutual Agreement Procedure

Article 27 : Exchange of Information

Article 28 : Diplomatic Agents & Consular Officers Article 29 : Territorial Extension

Article 30 : General Rule of Taxation

Article 31 : Assistance In Collection

CHAPTER VII : FINAL PROVISIONS

Article 30 : Entry Into Force

Article 31 : Termination

PROTOCOL


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DTA PROCESS

Political will

Common statement announcedafter initial meeting of the twodelegations

Preparation, planning, andnegotiation the draft of DTA

“Negotiation rounds”

Draft approval, signing, andratification (by issuance ofPresidential Decree to the

House of Representative) Exchange of instruments of

ratification and determiningeffective date of DTA application


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POST-TEST

What do you know about DTA?

Explain from at least 3 (three)

significant aspect of it! Summarize as to how the DTA avoids

international double taxation!

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THANK YOU

Contact the following for further details:

IMAN SANTOSO

PSS Consult –

Ernst & Young Indonesia+62 21 5289 5250

+62 811 88 4267

[email protected]

Introduction to International Taxation

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