The Netherlands and Indonesia concluded a Protocol to amend their existing DTA

On August 10, 2015 the Dutch Government published the text of a Protocol amending the Agreement between the Government of the Kingdom of the Netherlands 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, and its Protocol, signed at Jakarta on January 29, 2002. Based on the information provided by the Dutch Government the (new) Protocol was signed on July 30, 2015.

Although signed, the Protocol has not yet entered into force. For the Protocol to enter into force, the respective ratification procedures have to have been finalized in both countries.

Below we will discuss a selection of the regulations included in the recently signed Protocol of which we think they might interest our readers.

Dividends

The Protocol a.o. amends Paragraph 2 of Article 10 (“Dividends”) of the existing DTA.

Under the existing DTA, the source state is allowed to withhold 10% dividend withholding taxes over dividend distributions made if the beneficial owner of the dividends is a resident of the other state.

The Protocol amends Paragraph 2 of Article 10 in such a way that it will read as follows:

“However, such dividends may also be taxed in the 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) 5 per cent of the gross amount of the dividends if the beneficial owner is a company (other than a partnership) which holds directly at least 25 per cent of the capital of the company paying the dividends;

b) 10 per cent of the gross amount of the dividends if the beneficial owner is a pension fund that is recognized and controlled according to the statutory provisions of one of the two States and the income of which is generally exempt from tax in the State according to whose statutory provisions it is recognized and controlled;

c) 15 per cent of the gross amount of the dividends in all other cases.”

Interest

Based on Paragraph 2 of Article 11 (“Interest”) of the DTA the source state is allowed to withhold 10% withholding taxes over interest payments made to a resident of the other state.

Paragraph 4 of Article 11 of the existing DTA subsequently determines that a source state is not allowed to withhold withholding taxes over interest payments if the beneficial owner of the interest is a resident of the other State and if the interest is paid on a loan made for a period of more than 2 years or is paid in connection with the sale on credit of any industrial, commercial or scientific equipment.

The Protocol amends Paragraph 4 of Article 11 in such a way that it will read as follows:

“Notwithstanding the provisions of paragraph 2, interest arising in one of the two States may also be taxed in the 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 and if the interest is paid on a loan made for a period of more than 2 years or is paid in connection with the sale on credit of any industrial, commercial or scientific equipment, the tax so charged shall not exceed 5 per cent of the gross amount of the interest.”

The Protocol furthermore a.o. contains an Article amending the existing Article 28, which arranges the exchange of information.

Furthermore the Protocol introduces a new Article 28a on the Assistance in the collection of taxes.

The Protocol also contains an article that is to be inserted before Article I of the existing Protocol to the Agreement. This new Article reads as follows:

“General

Subject to any reservations, observations or positions as the case may be to the OECD Model Tax Convention or its Commentary made by either State, the two States shall interpret the provisions of the Agreement which are identical or in substance similar to the provisions of the OECD Model Tax Convention on Income and on Capital, in accordance with the OECD Commentary thereon at the moment of signing the Agreement and any subsequent clarifying modifications of such Commentary. Especially, the two States shall interpret the term ‘beneficial owner’ used in the Agreement in accordance with the interpretation thereof as published by the OECD at the moment of signing the Agreement and any subsequent clarifying modifications of such OECD interpretation.”

Above we only discussed a selection of articles of which we think they might be of interest to our readers. The full text of the recently signed Protocol can be found on the website of the Tractatenblad van het Koninkrijk der Nederlanden.

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