Indoswiss Tax Treaty Explanations

7/30/2019 Indoswiss Tax Treaty Explanations

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AGREEMENT BETWEEN

THE GOVERMENT OF THE REPUBLIC OF INDONESIA

AND

THE GOVERNMENT OF THE SWITZERLAND

CONFEDERATION FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE

PREVENTION OF FISCAL EVASION WTH RESPECT TO TAXES ON INCOME

Article 1

PERSONAL SCOPE

This Agreement shall apply to person who are resident of one or both of the Contracting State.

Analysis

The statement above is self-explanatory. It determines the scope to which the agreement is applicable to,

applying only to the residents of the Republic of Indonesia and/or Switzerland. No third-person residingoutside of the borders of these stated independent countries will he held accountable to conform to this

tax agreement. The benefits of the tax treaties, in general, are available only to persons who are residents

of one of the stated treaty countries.

Article 2

TAXES COVERED

1. This Agreement shall apply to taxes on income imposed on behalf of a Contracting Stateor of its political subdivisions or local authorities, irrespective of the manner in whichthey are levied.

Analysis

The taxes specified in Article 2 are the covered taxes for all purposes of the Convention except forpurposes of Article 22 (Non-Discrimination), which applies with respect to taxes of all kinds imposed atany governmental level.

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

3. The existing taxes to which the Agreement apply are in particular ;(a) in Indonesia :

the income tax (Pajak Penghasilan) including the company tax and any withholdingtax, prepayments or advance payment with respect to the aforesaid tax.

(hereinafter referred to as "Indonesian tax");(b) in Switzerland :


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the federal, cantonal and communal taxes on income (total income, earned income,income from capital, industrial and commercial gains, and other items of income)

(hereinafter referred to as "Swiss tax").

Analysis

In the case of Indonesia, the proposed treaty applies to the Income, Corporate and Withholding Tax, alsoincluding prepayments with regards to the aforementioned tax. In the case of Switzerland, the treatyapplies to their federal, cantonal and communal taxes on income.

4. The Agreement shall apply also to any identical or substantially similar taxes which areimposed after the date of signature of the Agreement in addition to, or in place of, theexisting taxes. The competent authorities of the Contracting States shall notify each otherof changes which have been made in their respective taxation laws.

Analysis

The proposed treaty also applies to any taxes that are identical or substantially similar to the taxesdescribed in the preceding paragraph and that are imposed after the signing of the proposed treaty inaddition to or in place of existing taxes. The proposed treaty obligates the competent authority of eachtreaty country to notify the competent authority of the other treaty country of any significant changes inits internal taxation laws.

Article 3

GENERAL DEFINITIONS

1. For the purposes of this Agreement, unless the context otherwise requires :(a) 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 hassovereign rights or jurisdiction in accordance with international law;

(b) the term "Switzerland" means the Swiss Confederation;(c) the term "a Contracting State" and "the other Contracting State" means Indonesia or

Switzerland, as the context requires;(d) the term "person" includes an individual, a company and any other body of persons;(e) the term "company" means any body corporate or any entity which is treated as a

body corporate for tax purposes;(f) the terms "enterprise of a Contracting State" and "enterprise of the other

Contracting State" mean respectively an enterprise carried on by a resident of aContracting State and an enterprise carried on by a resident of the other ContractingState;

(g) the term "international traffic" means any transport by a ship or aircraft operated byan enterprise of a Contracting State, except when the ship or aircraft is operatedsolely between places in the other Contracting State;

(h) the term "nationals" means:(i) all individuals possessing the nationality of a Contracting State;


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(ii) all legal persons, partnerships and associations deriving their status as suchfrom the laws in force in a Contracting State;

(i) the term "competent authority" means:(i) in Indonesia, the Minister of Finance or his authorized representative, and(ii) in Switzerland, the Director of the Federal Tax Administration or his

authorized representative;(j) the term "tax" means Indonesian tax or Swiss tax, as the context requires.

Analysis

This article provides definitions of a number of terms for purposes of the proposed treaty. It sets forth the

geographical scope of the proposed treaty with respect to Indonesia and Switzerland. In the case of

Switzerland, it encompasses the territory of the Swiss Confederation. In the case of Indonesia, it

encompasses the Republic of Indonesia including the territorial sea, and the adjacent areas in which

Indonesia has sovereign rights in accordance with international law.

The term person includes an individual, an estate, a trust, a partnership, a company, and any other bodyof persons.

The terms enterprise of a Contracting State and enterprise of the other Contracting State mean,

respectively, an enterprise carried on by a resident of one of the treaty countries and an enterprise carried

on by a resident of the other treaty country. An enterprise of a Contracting State also includes an

enterprise carried on by a resident of a treaty country through an entity that is treated as fiscally

transparent in that treaty country.

The term international traffic means any transport by a ship or aircraft except when such transport is

solely between places within a treaty country. For example, a carriage of goods or passengers between

Jakarta and Bali by either a Swiss or Indonesian carrier would not be treated as international traffic. If

however, goods or passengers are carried by a Swiss carrier from Bern to Jakarta then Bali, the entire

transport would be international traffic. This definition is applicable principally in the context of Article 8

(Shipping and Air Transport).

The term national as applied to one of the two treaty countries means (1) an individual who possesses

nationality of that treaty country, and (2) any legal person, partnership, association, or other entity

deriving its status as such from the laws of that treaty country. This term is relevant for purposes of

Articles 19 (Government Service) and 22 (Non-Discrimination).

The article designates the competent authorities for Indonesia and Switzerland. In the case of Indonesia,

the competent authority is the Minister of Finance (Mr. Agus Martowardojo) or his authorizedrepresentative. The Switzerland competent authority is the Director of the Federal Tax Administration

(Mr. Adrian Hug) or his authorized representative.

2. As regards the application of the Agreement by a Contracting State any term not definedtherein shall, unless the context otherwise requires, have the meaning which it has underthe law of that State concerning the taxes to which the Agreement applies.


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Analysis

Terms that are not defined in the proposed treaty are covered in paragraph 2. Paragraph 2 provides that inthe application of the proposed treaty, any term not defined in the proposed treaty will have the meaningthat it has under the law of the country whose tax is being applied unless the context requires otherwise orthe competent authorities have agreed on a different meaning under Article 23 (Mutual Agreement

Procedure). If the term is defined under both the tax and non-tax laws of a treaty country, the definition inthe tax law prevails.

Article 4

RESIDENT

1. For the purposes of this Agreement, the term "resident of a Contracting State" means anyperson 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.

2. Where by reason of the provisions of paragraph 1 an individual is a resident of bothContracting States, then his status shall be determined as follows:

(a) he shall be deemed to be a resident of the State in which he has a permanent homeavailable to him; if he has a permanent home available to him in both States, heshall be deemed to be a resident of the State with which his personal and economicrelations are closer (centre of vital interests);

(b) if the State in which he has his centre of vital interests cannot be determined, or ifhe has not a permanent home available to him in either State, he shall be deemed tobe a resident of the State in which he has an habitual abode;

(c) if he has an habitual abode in both States or in neither of them, the competentauthorities of the Contracting States shall settle the question by mutual agreement.

3. Where by reason of the provisions of paragraph 1 a person other than an individual is aresident of both Contracting States, the competent authorities of the Contracting Statesshall settle the question by mutual agreement.

Analysis

The proposed treaty provides a series of tie-breaker rules to determine residence in the case of an

individual who, under the basic residence definition, would be considered to be a resident of both

countries. These tie-breaker rules are to be applied in the order in which they are described above. Under

these rules, an individual is deemed to be a resident of the country in which he or she has a permanent

home available. If the individual has a permanent home in both countries, the individuals residence is

deemed to be the country with which his or her personal and economic relations are closer (that is, the

individuals center of vital interests such as family or work). If it cannot be determined in which

country the individual has his or her center of vital interests, or if the individual does not have a

permanent home available in either country, the individual is deemed to be a resident of the country in

which he or she has a habitual abode. If the individual has a habitual abode in both countries or in neither

country, the individual is deemed to be a resident of the country of which he or she is a national. If the


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individual is a national of both countries or of neither country, the competent authorities of the countries

will endeavor to settle the question of residence by mutual agreement.

Article 5

PERMANENT ESTABLISMENT

1. For the purposes of this Agreement, the term "permanent establishment" means a fixedplace of business through which the business of an enterprise is wholly or partly carriedon.

Analysis

The permanent establishment concept is one of the basic devices used in income tax treaties to limit thetaxing jurisdiction of the host country and thus to mitigate double taxation. Generally, an enterprise that isa resident of one country is not taxable by the other country on its business profits unless those profits areattributable to a permanent establishment of the resident in the other country. In addition, the permanentestablishment concept is used to determine whether the reduced rates of, or exemptions from, tax

provided for dividends, interest, and royalties apply, or whether those items of income will be taxed asbusiness profits.

2. The term "permanent establishment" includes especially:(a) a place of management;(b) a branch;(c) an office;(d) a factory;(e) a Workshop;(f) a mine, an oil or gas well, a quarry or any other place of extraction of natural

resources;(g) a farm of plantation;(h) a building site, a construction, installation or assembly project or supervisory

activities in connection therewith, where such site, project or activity continues fora period of more than 183 days.

Analysis

In general, under the proposed treaty, a permanent establishment as stated in paragraph 1 is a fixed placeof business in which the business of an enterprise is wholly or partly carried on. A permanentestablishment includes a place of management, a branch, an office, a factory, a workshop, a mine, oil or

gas well, a quarry, or other place of extraction of natural resources. It also includes a building site or aconstruction or assembly project if the site or project lasts for more than 183 days, and includes aninstallation used for the exploration of natural resources if the activity continues in the treaty country formore than 183 days.

3. The term "permanent establishment" shall be deemed not to include:(a) the use of facilities solely for the purpose of storage or display of goods or


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merchandise belonging to the enterprise;(b) the maintenance of a stock of goods or merchandise belonging to the enterprise

solely for the purpose of storage or display;(c) the maintenance of a stock of goods or merchandise belonging to the enterprise

solely for the purpose of processing by another enterprise;

(d) the maintenance of a fixed place of business solely for the purpose of purchasinggoods or merchandise or of collecting information, for the enterprise;(e) the maintenance of a fixed place of business solely for the purpose of advertising,

for the supply of information, for scientific research, or for similar activities whichhave a preparatory or auxiliary character;

Analysis

The proposed treaty provides that the following activities of a preparatory or auxiliary character aredeemed not to constitute a permanent establishment: (1) the use of facilities solely for storing, displaying,or delivering goods or merchandise belonging to the enterprise; (2) the maintenance of a stock of goods ormerchandise belonging to the enterprise solely for storage, display, or delivery or solely for processing by

another enterprise; and (3) the maintenance of a fixed place of business solely for the purchase of goodsor merchandise or for the collection of information for the enterprise. The proposed treaty also providesthat the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise,any other activity of a preparatory or auxiliary character does not constitute a permanent establishment.The proposed treaty further provides that a combination of these activities will not give rise to apermanent establishment if the combination results in an overall activity that is of a preparatory orauxiliary character.

4. Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than anagent of an independent status to whom paragraph 6 applies - is acting in a ContractingState on behalf of an enterprise of the other Contracting State, that enterprise shall be

deemed to have a permanent establishment in the first-mentioned Contracting State inrespect of any activities which that person undertakes for the enterprise, if such a person:

(a) has and habitually exercises in that State an authority to conclude contracts in thename of the enterprise, unless the activities of such persons are limited to thosementioned in paragraph 3 which, if exercised through a fixed place of business,would not make this fixed place of business a permanent establishment under theprovisions of that paragraph; or

(b) has no such authority, but habitually maintains in the first-mentioned State a stockof goods or merchandise from which he regularly delivers goods or merchandise onbehalf of the enterprise.

Analysis

Under the proposed treaty, if a person, other than an independent agent, is acting in a treaty country onbehalf of an enterprise of the other country and has, and habitually exercises in such first country, theauthority to conclude contracts in the name of such enterprise, the enterprise is deemed to have apermanent establishment in the first country in respect of any activities undertaken for that enterprise.Therefore, an agent can claim to be dependent if he or she has authority to conclude contracts on behalf ofthe enterprise or has no such authority to conclude contracts but habitually maintains a stock of goods


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from which she/he regularly delivers the goods on behalf of enterprise. An example would be E-bay. Thisrule does not apply in cases in which the activities are limited to the activities described in the precedingparagraph that would not give rise to a permanent establishment if carried on by the enterprise through afixed place of business.

5. An insurance enterprise of a Contracting State shall, except with regard to reinsurance, bedeemed to have a permanent establishment in the other Contracting State if it collectspremiums in the territory of that other State or insures risks situated there through anemployee or through a representative who is not an agent of an independent status withinthe meaning of paragraph 6.

Analysis

An insurance enterprise is implied to be a permanent establishment if they carry out their businessoperations (insuring risks and collecting premiums) in the other Contracting State or through a dependentrepresentative. There are exceptions in correlations to these regulations in regards to reinsuranceenterprises.

6. An enterprise of a Contracting State shall not be deemed to have a permanentestablishment in the other Contracting State merely because it carries on business in thatother State through a broker, general commission agent or any other agent of anindependent status, provided that such persons are acting in the ordinary course of theirbusiness. However, when the activities of such an agent are devoted wholly or almostwholly on behalf of that enterprise, he will not be considered an agent of an independentstatus within the meaning of this paragraph.

Analysis

Whether an enterprise and an agent are independent is a factual determination, and that the relevantfactors in making this determination include: (1) the extent to which the agent operates on the basis of

instructions from the principal; (2) the extent to which the agent bears business risk; and (3) whether the

agent has an exclusive or nearly exclusive relationship with the principal.

7. The fact that a company which is a resident of a Contracting State controls or iscontrolled by a company which is a resident of the other Contracting State, or whichcarries on business in that other State (whether through a permanent establishment orotherwise), shall not of itself constitute either company a permanent establishment of theother.

Analysis

Paragraph 7 clarifies that a company which is a resident of a Contracting State will not be deemed to have

a permanent establishment in the other Contracting State merely because it controls, or is controlled by, a

company that is a resident of that other Contracting State, or that carries on business in that other

Contracting State. The determination of whether or not a permanent establishment exists will be made

solely on the basis of the factors described in paragraphs 1 through 6 of the Article. Whether or not a


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company is a permanent establishment of a related company, therefore, is based solely on those factors

and not on the ownership or control relationship between the companies.

Article 6

INCOME FROM IMMOVABLE PROPERTY

1. Income derived by a resident of a Contracting State from immovable property (includingincome from agriculture or forestry) situated in the other Contracting State may be taxedin that other State.

Analysis

This article covers income from immovable property (real property). The rules governing gains from the

sale of immovable property are included in Article 13 (Capital Gains). Under the proposed treaty, income

derived by a resident of one country from immovable property situated in the other country may be taxed

in that other country.

2. The term "immovable property" shall have the meaning which it has under the law of theContracting State in which the property in question is situated. The term shall in any caseinclude property accessory to immovable property, livestock and equipment used inagriculture and forestry, rights to which the provisions of general law respecting landedproperty apply, usufruct of immovable property and rights to variable or fixed paymentsas consideration for the working of, or the right to work, mineral deposits, sources andother natural resources; ships and aircraft shall not be regarded as immovable property.

Analysis

The term immovable property generally has the meaning that it has under the law of the country inwhich the property in question is situated. The proposed treaty provides that regardless of internal law

definitions, immovable property also includes property accessory to immovable property, including

livestock and equipment used in agriculture and forestry; rights to which the provisions of general law

respecting landed property apply; usufruct (the legal right to use anothers property) of immovable

property; and rights to variable or fixed payments as consideration for the working of, or the right to

natural resources. Ships, boats, and aircraft are not classified as immovable property.

3. The provisions of paragraph 1 shall apply to income derived from the direct use, letting,or use in any other form of immovable property.

Analysis

The proposed treaty specifies that the country in which the property is situated also may tax income

derived from the direct use, letting, or use in any other form of immovable property.


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4. The provisions of paragraphs 1 and 3 shall also apply to the income from immovableproperty of an enterprise and to income from immovable property used for theperformance of professional services.

Analysis

Paragraph 4 specifies that the basic rule of paragraph 1 (as elaborated in paragraph 3)

applies to income from real property of an enterprise and to income from real property used for the

performance of independent personal services. This clarifies that the Contracting State may tax the real

property income of a resident of the other Contracting State in the absence of a permanent establishment

or fixed base in the Contracting State, notwithstanding the requirements of Articles 7 (Business Profits)

and 14 (Independent Personal Services) that in order to be taxable, income must be attributable to a

permanent establishment or fixed base, respectively.

Article 7

BUSINESS PROFITS

1. The profits of an enterprise of a Contracting State shall be taxable only in that Stateunless the enterprise carries on business in the other Contracting State through apermanent establishment situated therein. If the enterprise carries on business asaforesaid, the profits of the enterprise may be taxed in the other State but only so much ofthem as is attributable to that permanent establishment.

Analysis

This Article provides the rules for the taxation by a Contracting State of the business profits of an

enterprise of the other Contracting State. Under the proposed treaty, business profits of an enterprise of a

treaty country may be taxed in the other treaty country only to the extent that they are attributable to apermanent establishment in that other country through which the enterprise carries on business. This rule

is one of the basic treaty limitations on a countrys right to tax income of a resident of the other country.

2. Subject to the provisions of paragraph 3, where an enterprise of a Contracting Statecarries on business in the other Contracting State through a permanent establishmentsituated therein, there shall in each Contracting State be attributed to that permanentestablishment the profits which it might be expected to make if it were a distinct andseparate enterprise engaged in the same or similar activities under the same or similarconditions and dealing wholly independently with the enterprise of which it is apermanent establishment

Analysis

Paragraph 2 provides rules for the proper attribution of business profits to a permanent

establishment. It provides that the Contracting States will attribute to a permanent establishment the

profits which it would have earned had it been an independent entity, engaged in the same or similar

activities under the same or similar circumstances. The computation of the business profits attributable to

a permanent establishment under this paragraph is subject to the rules of paragraph 3 for the allowance of


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expenses incurred for the purposes of earning the income. The profits attributable to a permanent

establishment may be from sources within or without a Contracting State. For this purpose, the business

profits to be attributed to the permanent establishment include only the profits derived from the assets

used, risks assumed, and activities performed by the permanent establishment.

3. In determining the profits of a permanent establishment, there shall be allowed asdeductions expenses which are incurred for the purposes of the permanent establishment,including executive and general administrative expenses so incurred, whether in the Statein which the permanent establishment is situated or elsewhere.

Analysis

The proposed treaty provides that in computing taxable business profits of a permanent establishment,

deductions are allowed for expenses, wherever incurred, that are for the purposes of the permanent

establishment. These deductions include executive and general administrative expenses so incurred. Its

implied that deductions are allowed regardless of which accounting unit of the enterprise books the

expenses, so long as the expenses are incurred for the purposes of the permanent establishment (includingfor the purposes of the enterprise as a whole or that part of the enterprise that includes the permanent

establishment).

4. In so far as it has been customary in a Contracting State to determine the profits to beattributed to a permanent establishment on the basis of an apportionment of the totalprofits of the enterprise to its various parts, nothing in paragraph 2 shall preclude thatContracting State from determining the profits to be taxed by such an apportionment asmay be customary; the method of apportionment adopted shall, however, be such that theresult shall be in accordance with the principles contained in this Article.

Analysis

Paragraph 2 should not prevent the Contracting State- even if it is the norm or customary- to calculate

profits to be attributed to a permanent establishment on the basis of apportionment (allotment), However,

it is necessary that the apportionment method adopted be in accordance to the principles of this Article.

5. No profits shall be attributed to a permanent establishment by reason of the merepurchase by that permanent establishment of goods or merchandise for the enterprise.

Analysis

The proposed treaty provides that business profits are not attributed to a permanent establishment merely

by reason of the purchase of goods or merchandise by the permanent establishment for the enterprise of

which it is a part. According to the Technical Explanation, this rule applies only to an office that

performs functions in addition to purchasing because purchasing does not by itself give rise to a

permanent establishment under Article 5 (Permanent Establishment) to which income can be attributed.

When it applies, the rule provides that business profits may be attributable to a permanent establishment

for its non-purchasing activities (sales activities, for example), but not for its purchasing activities.


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6. For the purposes of the preceding paragraphs, the profits to be attributed to the permanentestablishment shall be determined by the same method year by year unless there is goodand sufficient reason to the contrary.

Analysis

The proposed treaty requires that the determination of the business profits of a permanent establishment

be made using the same method year by year unless there is good and sufficient reason to the contrary.

This rule limits the ability of both the treaty country and the enterprise to change accounting methods to

be applied to the permanent establishment.

7. Where profits include items of income which are dealt with separately in other Articles ofthis Agreement, then the provisions of those Articles shall not be affected by theprovisions of this Article.

Analysis

Where business profits include items of income that are dealt with separately in other articles of theproposed treaty, those other articles, and not the business profits article, generally govern the treatment ofthose items of income. Thus, for example, the taxation of dividends is determined under the rules ofArticle 10 (Dividends), and not by the rules of Article 7, except as specifically provided in Article 10 (thatis, when dividends are attributable to a permanent establishment).

Article 8

SHIPPING AND AIR TRANSPORT

1. Profits from the operation of ships in international traffic may be taxed in the ContractingState of which the enterprise operating the ship is a resident.

Analysis

This article covers income from the operation of ships and aircraft in international traffic. The rules

governing income from the disposition of ships, aircraft, and containers are in paragraph 3 of Article 14

(Capital Gains).

The proposed treaty provides that profits of an enterprise of one treaty country from the operation of ships

in international traffic are taxable only in that country of which the enterprise is a resident. Paragraph 7 of

Article 7 (Business Profits) provides that if profits include items of income that are described in both

Article 7 and other articles of the proposed treaty, including this article, the provisions of those otherarticles are not affected by the provisions of Article 7. The rules of this article, therefore, are not affected

by the general rule of Article 7 that profits attributable to a permanent establishment that an enterprise of a

treaty country has in the other treaty country may be taxed in the other treaty country. Consequently, the

profits of an enterprise of a treaty country from the operation of ships in international traffic may not be

taxed in the other treaty country even if the enterprise has a permanent establishment in that other treaty

country, but may be taxed by the Other Contracting States on the basis of Paragraph 2 of this Article.


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2. However, such profits may also be taxed in the Contracting State in which such operationis carried on; but the tax so charged shall not exceed 50% of the tax otherwise imposedby the internal law of that State.

Analysis

The treaty country where the operation is being carried on may tax the profit from the ships enterprise,

but may not charge more than 50% relative to what wouldve otherwise been imposed by the local

regulation. For example, an Indonesian vessel operating in Indonesian territory is charged a tax of $50. If

instead, a Swiss vessel operated in Indonesian territory, then Indonesia may not tax them more than $100

(assuming similar conditions with the Indonesian vessel) because it wouldve exceeded 50% of the tax

otherwise imposed by the local law.

3. Profits from the operation of aircraft in international traffic shall be taxable only in theContracting State of which the enterprise operating the aircraft is a resident.

Analysis

Paragraph 1 provides that profits derived by an enterprise of a Contracting State from the operation in

international traffic of ships or aircraft shall be taxable only in that Contracting State.

4. The provisions of paragraphs 1, 2 and 3 shall also apply to profits from the participationin a pool, a joint business or an international operating agency.

Analysis

This paragraph clarifies that the provisions of paragraph 1 also apply to profits derived by an enterprise of

a Contracting State from participation in a pool, joint business or international operating agency. Thisrefers to various arrangements for international cooperation by carriers in shipping and air transport. For

example, airlines from two countries may agree to share the transport of passengers between the two

countries. They each will fly the same number of flights per week and share the revenues from that route

equally, regardless of the number of passengers that each airline actually transports.

Article 9

ASSOCIATED ENTERPRISES

Where :

(a) an enterprise of a Contracting State participates directly or indirectly in the management,control or capital of an enterprise of the other Contracting State, or

(b) the same persons participate directly or indirectly in the management, control or capital ofan enterprise of a Contracting State and an enterprise of the other Contracting State,

and in either case conditions are made or imposed between the two enterprises in theircommercial or financial relations which differ from those which would be made betweenindependent enterprises, then any profits which would, but for those conditions, have accrued to


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one of the enterprises, but, by reason of those conditions, have not so accrued, may be includedin the profits of that enterprise and taxed accordingly.

Analysis

The proposed treaty recognizes the right of each country to make an allocation of profits to an enterpriseof that country in the case of transactions between related enterprises, if conditions are made or imposed

between the two enterprises in their commercial or financial relations that differ from those that would be

made between independent enterprises. In such a case, a country may allocate to such an enterprise the

profits that it would have accrued but for the conditions so imposed.

For purposes of the proposed treaty, an enterprise of one country is related to an enterprise of the other

country if one of the enterprises participates directly or indirectly in the management, control, or capital of

the other enterprise. Enterprises are also related if the same persons participate directly or indirectly in the

enterprises management, control, or capital.

Under the proposed treaty, when a redetermination of tax liability has been made by one country under the

provisions of this article, and the other country agrees with that redetermination, then that other country

will make an appropriate adjustment to the amount of tax paid in that country on the redetermined income.

In making such adjustment, due regard is to be given to other provisions of the proposed treaty.

Article 10

DIVIDENDS

1. Dividends paid by a company which is a resident of a Contracting State to a resident ofthe other Contracting State may be taxed in that other State.

Analysis

Paragraph 1 preserves the residence country's general right to tax dividends arising in the source country

by permitting a Contracting State to tax its residents on dividends paid by a company that is a resident of

the other Contracting State.

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

(a) 10% of the gross amount of the dividends if the beneficial owner is a company

(other than a partnership) which holds directly at least 25% of the capital of thecompany paying the dividends;

(b) 15% of the gross amount of the dividends in all other cases.The competent authorities of the Contracting States shall by mutual agreement settle themode of application of these limitations.This paragraph shall not affect the taxation of the company in respect of the profits out ofwhich the dividends are paid.


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Analysis

Under the proposed treaty, source-country taxation of dividends generally is limited to 15 percent of the

gross amount of the dividends paid to residents of the other treaty country. A lower rate of 10 percentapplies if the beneficial owner of the dividends is a company that owns directly at least 25 percent of the

capital of the company paying the dividends.

The rules of Article 1 (General Scope) of the proposed treaty apply to determine whether the dividends

should be treated as derived by a resident of a treaty country. The laws of the residence country determine

who derives the dividend, and the laws of the source country determine whether the person who derives

the dividends is the beneficial owner of the dividends.

3. The term "dividends" as used in this Article means income from shares, "jouissance"shares or "jouissance" rights, mining shares, founders' shares or other rights, not being

debt-claims, participating in profits, as well as income from other corporate rights whichis subjected to the same taxation treatment as income from shares by the laws of the Stateof which the company making the distribution is a resident.

Analysis

The proposed treaty generally defines dividends as income from shares or other corporate participationrights that are not treated as debt, as well as other amounts that are subject to the same tax treatment by thesource country as income from shares (for example, constructive dividends). Note that the term is definedbroadly and flexibly, and is intended to cover all arrangements that yield a return on an equity investmentin a corporation as determined under the tax law of the source country.

4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of thedividends, being a resident of a Contracting State, carries on business in the otherContracting State of which the company paying the dividends, is a resident, through apermanent establishment situated therein and the holding in respect of which thedividends are paid is effectively connected with such permanent establishment. In Such acase the provisions of Article 7 shall apply.

Analysis

The proposed treatys reduced rates of tax on dividends do not apply if the dividend recipient carries onbusiness through a permanent establishment in the source country and the holding in respect of which the

dividends are paid is effectively connected with that permanent establishment. In this case, the dividendsare taxed as business profits (Article 7). For example, a company with Swiss residency has a branch inIndonesia. This branch holds shares for the company that would in turn provide them with dividends.When the dividends are given out, the Swiss headquarter will receive the profit indirectly through theIndonesian branch.

5. Where a company which is a resident of a Contracting State derives profits or incomefrom the other Contracting State, that other State may not impose any tax on the


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dividends paid by the company, except insofar as such dividends are paid to a resident ofthat other State or insofar as the holding in respect of which the dividends are paid iseffectively connected with a permanent establishment situated in that other State, norsubject the company's undistributed profits, even if the dividends paid or theundistributed profits consist wholly or partly of profits or income arising in such other

State.

Analysis

The proposed treaty prevents each treaty country from imposing a tax on dividends paid by a resident of

the other treaty country unless the dividends are paid to a resident of the first country or are attributable to

a permanent establishment in that country. The proposed treaty also restricts the rights of a treaty country

to impose corporate level taxes, other than a branch profits tax, on undistributed profits.

6. Where a company which is resident of Switzerland and having a permanent establishmentin Indonesia derives profits or income from that permanent establishment, such profits

may be taxed in accordance with the laws of Indonesia, but the rate of tax imposed shallnot exceed 10% of the amount of such profits, after deducting therefrom the income taximposed thereon in Indonesia.

Analysis

The proposed treaty allows each treaty country to impose a branch profits tax on a company resident in

the other country if the company has income attributable to a permanent establishment in that country,

derives income from real property in that country that is taxed on a net basis under the treaty, or realizes

gains taxable in that country under the treaty.

Article 11INTEREST

1. Interest arising in a Contracting State and paid to a resident of the other Contracting Statemay be taxed in that other State

Analysis

The proposed treaty provides that interest arising in one treaty country (the source country) and

beneficially owned by a resident of the other treaty country generally may be taxed in the other treaty

country.

2. However, such interest may also be taxed in the Contracting State in which it arises andaccording to the laws of that State, but if the recipient is the beneficial owner of theinterest the tax so charged shall not exceed 10% of the gross amount of the interest. Thecompetent authorities of the Contracting States shall by mutual agreement settle the modeof application of this limitation.


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Analysis

The source country may also tax the recipient of the interest as long as it does not exceed 10% of the

interests gross amount. This limitation percentage should be decided by the competent authorities of the

Contracting State.

3. The term "interest" as used in this Article means income from debt-claims of every kind,whether or not secured by mortgage and whether or not carrying a right to participate inthe debtor's profits, and in particular, income from government securities and incomefrom bonds or debentures, including premiums and prizes attaching to such securities,bonds or debentures as well as income assimilated to income from money lent by thetaxation law of the State in which the income arises. However, the term "interest" doesnot include income dealt with in Article 10.

Analysis

The proposed treaty defines interest as income from debt-claims of every kind, whether or not securedby mortgage and whether or not carrying a right to participate in the debtors profits. In particular,interest includes income from government securities and from bonds or debentures, including premiumsand prizes attaching to those securities, bonds, or debentures. The term interest also includes all otherincome that is treated as income from money lent under the tax law of the treaty country in which theincome arises. Interest does not include income covered in Article 10 (Dividends). Penalty charges forlate payment also are not treated as interest.

4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of theinterest, being a resident of a Contracting State, carries on business in the otherContracting State in which the interest arises, through a permanent establishment situatedtherein and the debt-claim in respect of which the interest is paid is effectively connected

with such permanent establishment. In such case the provisions of Article 7 shall apply.

Analysis

The exemption from source country taxation does not apply if the beneficial owner of the interest carrieson business through a permanent establishment in the source country and the debt-claim in respect ofwhich the interest is paid is effectively connected with that permanent the interest is a resident of one ofthe treaty countries, the interest is taxed as business profits (Article 7). Interest attributable to a permanentestablishment but received after the permanent establishment is no longer in existence is taxable in thecountry in which the permanent establishment existed.

5.

Interest shall be deemed to arise in a Contracting State when the payer is that State itself,a political subdivision, a local authority or a resident of that State. Where, however, theperson paying the interest, whether he is a resident of a Contracting State or not, has in aContracting State a permanent establishment in connection with which the indebtednesson which the interest is paid was incurred, and such interest is borne by such permanentestablishment, then such interest shall be deemed to arise in the State in which thepermanent establishment is situated.


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Analysis

Paragraph 5 concerns about the origin of the interests. It is determined through the identification of the

payers residency. If the payer of the interest is the resident of Switzerland then the interest will be

deemed to be from Switzerland. In the case of permanent establishments, the interest arises from where

the establishment is. For example, a Swiss company has a branch in Indonesia and it pays interest,Indonesia will thus be deemed to be the country of where the interest arises.

6. Where, by reason of a special relationship between the payer and the beneficial owner orbetween both of them and some other person, the amount of the interest, having regard tothe debt-claim for which it is paid, exceeds the amount which would have been agreedupon by the payer and the beneficial owner in the absence of such relationship, theprovisions of this Article shall apply only to the last-mentioned amount. In such case, theexcess part of the payments shall remain taxable according to the laws of eachContracting State, due regard being had to the other provisions of this Agreement.

Analysis

Article 12

ROYALTIES

1. Royalties arising in a Contracting State and paid to a resident of the other ContractingState may be taxed in that other State.

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 recipient is the beneficial owner of the

royalties the tax so charged shall not exceed 12.5% of the gross amount of the royalties.The competent authorities of the Contracting States shall by mutual agreement settle themode of application of this limitation.

3. The term "royalties" as used in this Article means payments of any kind received as aconsideration for the use of, or the right to use, any copyright of literary, artistic orscientific work including cinematograph films or films or tapes for radio or televisionbroadcasting, any patent, trade mark, design or model, plan, secret formula or process, orfor the use of, or the right to use, industrial, commercial, or scientific equipment, or forinformation concerning industrial, commercial or scientific experience.

Analysis

4. The provisions of paragraph 1 and 2 shall not apply if the beneficial owner of theroyalties, being a resident of a Contracting State, carries on business in the otherContracting State in which the royalties arise, through a permanent establishment situatedtherein and the right or property in respect of which the royalties are paid is effectively


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46

connected with such permanent establishment. In such case, the provisions of Article 7shall apply.

Analysis

5.

Royalties shall be deemed to arise in a Contracting State when the payer is that Stateitself, a political subdivision, a local authority or a resident of that State. Where, however,the person paying the royalties, whether he is a resident of a Contracting State or not, hasin a Contracting State a permanent establishment in connection with which the liability topay the royalties was incurred, and such royalties are borne by such permanentestablishment, then such royalties shall be deemed to arise in the State in which thepermanent establishment is situated.

Analysis

6. Where, by reason of a special relationship between the payer and the beneficial owner orbetween both of them and some other person, the amount of the royalties, having regardto the use, right or information for which they are paid, exceeds the amount which wouldhave been agreed upon by the payer and the beneficial owner in the absence of suchrelationship, the provisions of this Article shall apply only to the last-mentioned amount.In such case, the excess part of the payments shall remain taxable according to the lawsof each Contracting State, due regard being had to the other provisions of this Agreement.

Analysis

The proposed treaty addresses the issue of non-arms-length royalties between related parties (or parties

otherwise having a special relationship) by providing that this article applies only to the amount of

arms-length royalties. Any amount of royalties paid in excess of the arms-length amount is taxableaccording to other provisions of the proposed treaty. For example, excess royalties paid by a subsidiary

corporation to its parent corporation may be treated as a dividend under local law and, thus, entitled to the

benefits of Article 10 (Dividends).

Article 13

PAYMENTS FOR SERVICES

1. Payments for furnishing of services, including consultancy services, arising in aContracting State and derived by a resident of the other Contracting State may be taxed inthat other State.

2. However, such payments may also be taxed in the Contracting State in which they arise,and according to the laws of that State, provided that the services are furnished in thatState by an enterprise through employees or other personnel engaged by the enterprise forsuch purpose; but the tax so charged shall not exceed 5% of the gross amount of suchpayments. The competent authorities of the Contracting States shall by mutual agreementsettle the mode of application of this limitation.

3. The term "payments for services" as used in this Article means payments for services ofany kind including consultancy services furnished by an enterprise through employees or


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other personnel engaged by the enterprise for such purpose, but excluding payments forprofessional services or other independent activities of a similar character referred to inArticle 15.

4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of thepayments, being a resident of a Contracting State, carries on business in the other

Contracting State in which the payments arise, through a permanent establishmentsituated therein and the activity in respect of which the payments are made is effectivelyconnected with such permanent establishment. In such case, the provisions of Article 7shall apply.

5. Payments for the furnishing of services shall be deemed to arise in a Contracting Statewhen the payer is that State itself, a political subdivision, a local authority or a resident ofthat State. Where, however, the person paying for the furnishing of services, whether heis a resident of a Contracting State or not, has in a Contracting State a permanentestablishment in connection with which the services are rendered, and the payment isborne by such permanent establishment, then such payment shall be deemed to arise inthe State in which the permanent establishment is situated.

6.

Where, by reason of a special relationship between the payer and the beneficial owner orbetween both of them and some other person, the amount of the payments for furnishingof services, having regard to the activity for which it is paid, exceeds the amount whichwould have been agreed upon by the payer and the beneficial owner in the absence ofsuch relationship, the provisions of this Article shall apply only to the last-mentionedamount. In such case, the excess part of the payments shall remain taxable according tothe laws of each Contracting State, due regard being had to the other provisions of thisAgreement.

Article 14

CAPITAL GAINS

1. Gains derived by a resident of a Contracting State from the alienation of immovableproperty referred to in Article 6 and situated in the other Contracting State may be taxedin that other State.

2. Gains from the alienation of movable property forming part of the business property of apermanent establishment which an enterprise of a Contracting State has in the otherContracting State, including such gains from the alienation of such a permanentestablishment (alone or with the whole enterprise), may be taxed in that other State.

3. Gains derived by a resident of a Contracting State from the alienation of ships or aircraftoperated in international traffic or movable property pertaining to the operation of suchships or aircraft, shall be taxable only in that Contracting State.

4. Gains from the alienation of any property other than that referred to in paragraphs 1, 2and 3, shall be taxable only in the Contracting State of which the alienator is a resident.

Article 15

PERSONAL SERVICES

1. Subject to the provisions of Articles 16, 18, 19 and 20, salaries, wages and other similarremuneration in respect of an employment as well as income in respect of professional


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services or other independent activities of a similar character, derived by a resident of aContracting State, shall be taxable only in that State, unless the employment, services oractivities are exercised or performed in the other Contracting State. If the employment,services or activities are so exercised or performed, such remuneration or income as isderived therefrom may be taxed in that other State.

2.

Notwithstanding the provisions of paragraph 1, remuneration or income derived by aresident of a Contracting State in respect of an employment, services or activitiesexercised or performed in the other Contracting State shall be taxable only in the first-mentioned State if:

(a) the recipient is present in the other State for a period or periods not exceeding in theaggregate 183 days in any twelve month period; and

(b) the remuneration or income is paid by, or on behalf of, a person who is not aresident of the other State; and

(c) the remuneration or income is not borne by a permanent establishment which thatperson has in the other State.

3. Notwithstanding the preceding provisions of this Article, remuneration derived in respectof an employment exercised aboard a ship or aircraft operated in international traffic byan enterprise of a Contracting State may be taxed in that Contracting State.

Article 16

DIRECTORS' FEES

Directors' fees and other similar payments derived by a resident of a Contracting State in hiscapacity as a member of the board of directors or any other similar organ of a company which isa resident of the other Contracting State may be taxed in that other State.

Analysis

Under the proposed treaty, directors fees and other similar payments derived by a resident of one treatycountry for services rendered in his or her capacity as a member of the board of directors of a companythat is a resident of the other treaty country are taxable in that other treaty country. This rule is anexception to the more general rules of Articles 7 (Business Profits). Thus, it is not relevant to establishwhether the fee is attributable to a permanent establishment in a treaty country in determining whether adirectors fee paid to a nonemployee director is subject to tax in the country of residence of thecorporation.

Article 17

ARTISTES AND SPORTSMEN

1. Notwithstanding the provisions of Article 15, income derived by a resident of aContracting State as an entertainer, such as a theatre, motion picture, radio or televisionartiste, or a musician, or as a sportsman, from his personal activities as such exercised inthe other Contracting State, may be taxed in that other State.


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Analysis

Paragraph 1 describes the circumstances in which a treaty country may tax the performance income of an

entertainer or sportsman who is a resident of the other treaty country. Under the paragraph, income

derived by an individual resident of a treaty country from activities as an entertainer or sportsman

exercised in the other treaty country may be taxed in that other country.

2. Where income in respect of personal activities exercised by an entertainer or a sportsmanin his capacity as such accrues not to the entertainer or sportsman himself but to anotherperson, that income may, notwithstanding the provisions of Articles 7 and 15, be taxed inthe Contracting State in which the activities of the entertainer or sportsman are exercised.

Analysis

Paragraph 2 is intended to address the potential for circumvention of the rule in paragraph 1 when a

performers income does not accrue directly to the performer himself, but to another person. For

example, the employer may be a company established and owned by the performer, which is merelyacting as the nominal income recipient in respect of the remuneration for the performance (a star

company). The performer may act as an employee, receive a modest salary, and arrange to receive

the remainder of the income from his performance from the company in another form or at a later time.

In that case, absent the provisions of paragraph 2, the income arguably could escape host-country tax

because the company earns business profits but has no permanent establishment in that country.

Paragraph 2 seeks to prevent this result. Under paragraph 2, when the income accrues to a person other

than the performer, the income may be taxed in the treaty country where the performers services are

exercised, without regard to the provisions of the proposed treaty concerning business profits (Article 7)

or income from personal services (Article 15), unless the contract pursuant to which the personal

activities are preformed allows the person other than the performer to designate the individual who is toperform the personal activities.

3. The provisions of paragraphs 1 and 2 shall not apply to remuneration or profits, salaries,wages and similar income derived from activities performed in a Contracting State byentertainers or sportsmen if their visit to that State is substantially supported from thepublic funds of the other Contracting State, a political subdivision or a local authoritythereof.

Analysis

Paragraph 3 provides an exception to the rules in paragraphs 1 and 2 in the case of a visit to a ContractingState by an entertainer or athlete who is a resident of the other Contracting State, if the visit is

substantially supported, directly or indirectly, by the public funds of his State of residence or of a political

subdivision or local authority of that State. In the circumstances described, only the Contracting State of

residence of the entertainer or athlete may tax his income from the performances so supported in the other

State.


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Article 18

PENSIONS

1.

Subject to the provisions of paragraph 2 of Article 19, pensions and other similarremuneration paid to a resident of a Contracting State in consideration of pastemployment or any annuity paid to such resident shall be taxable only in that State.

2. The term "annuity" means a stated sum payable periodically at stated times during life orduring a specified or ascertainable period of time under an obligation to make thepayments in return for adequate and full consideration in money or money's worth.

Article 19

GOVERNMENT SERVICE

1. (a) Remuneration, other than a pension, paid by a Contracting State or a political

subdivision or a local authority thereof to an individual in respect of services renderedto that State or subdivision or authority shall be taxable only in that State.(b) However, such remuneration shall be taxable only in the other Contracting State if the

services are rendered in that State and the individual is a resident of that State who:(i) s a national of that State; or(ii) did not become a resident of that State solely for the purpose of

endering the services.2. (a) Any pension paid by, or out of funds created by, a Contracting State or a political

subdivision or a local authority thereof to an individual in respect of services renderedto that State or subdivision or authority shall be taxable only in that State.

(b) However, such pension shall be taxable only in the other Contracting State if the

individual is a resident of, and a national of, that State.3. The provision of Article 15, 16, 18 and 20 shall apply to remuneration and pensions inrespect of services rendered in connection with a business carried on by a Contracting Stateor a political subdivision or a local authority thereof.

Article 20

STUDENTS

1. Payments which a student or business apprentice who is or was formerly a resident of oneof the Contracting States and who is present in the other Contracting State solely for thepurpose of his education or training receives for the purpose of his maintenance,education or training shall not be taxed in that other Contracting State.

2. An individual who is or was formerly a resident of one of the Contracting States and whois present in the other Contracting State for the purpose of study, research or training orof acquiring technical, professional or business experience and who exercises in thatother Contracting State an employment for a period or periods not exceeding in theaggregate twelve months shall be exempt from tax in that other Contracting State forremuneration in respect of this employment provided that such employment is directly


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related to his studies, research, training or acquiring of experience and that theremuneration from the employment does not exceed 18,000.- Swiss francs.

Article 21

ELIMINATION OF DOUBLE TAXATION

1. In the case of Indonesia, double taxation shall be avoided as follows:(a) Indonesia, when imposing tax on residents of Indonesia, may include in the basis

upon which such tax is imposed the items of income which may be taxed inSwitzerland in accordance with the provisions of this Agreement.

(b) Where a resident of Indonesia derives income from Switzerland and such incomemay be taxed in Switzerland in accordance with the provisions of this Agreement,the amount of Swiss tax payable in respect of the income shall be allowed as acredit against the Indonesian tax imposed on that resident. The amount of credit,however, shall not exceed that part of the Indonesian tax which is appropriate to

such income.

2. In the case of Switzerland, double taxation shall be avoided as follows:(a) Where a resident of Switzerland derives income which, in accordance with the

provisions of this Agreement, may be taxed in Indonesia, Switzerland shall, subjectto the provisions of paragraphs (b) and (c), exempt such income from tax but may,in calculating tax on the remaining income of that resident, apply the rate of taxwhich would have been applicable if the exempted income had not been soexempted, provided, however, that where profits derived by a resident oSwitzerland from sources within Indonesia which in accordance with paragraph 2 of

Article 8 are subject to tax in Indonesia, the Swiss tax charged on those profits shallbe reduced by one half.(b) Where a resident of Switzerland derives dividends, interest or payments for services

which, in accordance with the provisions of Articles 10, 11 and 13, may be taxed inIndonesia, Switzerland shall allow, upon request, a relief to such resident. The reliefmay consist of:(i) a deduction from the tax on the income of that resident of an amount equal to

the tax levied in Indonesia in accordance with the provisions of Articles 10, 11and 13; such deduction shall not, however, exceed that part of the Swiss tax, ascomputed before the deduction is given, which is appropriate to the incomewhich may be taxed in Indonesia; or

(ii) a lump sum reduction of the Swiss tax; or(iii) a partial exemption of such dividends, interest or payments for services from

Swiss tax, in any case consisting at least of the deduction of the tax levied inIndonesia from the gross amount of the dividends, interest or payments forservices.

Switzerland shall determine the applicable relief and regulate the procedure inaccordance with the Swiss provisions relating to the carrying out of internationalconventions of the Swiss Confederation for the avoidance of double taxation.


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(c) Where a resident of Switzerland derives royalties which, in accordance with theprovisions of Article 12 may be taxed in Indonesia, Switzerland shall allow, uponrequest, a relief to such resident which may consist of:(i) the deduction of 2.5% of the gross amount of such royalties; and(ii) a deduction from the Swiss tax on the income of that resident, as computed by

reference to the relief referred to in sub-paragraph (i), of an amount of 10 percent of the gross amount of the royalties; such deduction shall, however, bedetermined pursuant to the general principles of relief referred to in paragraph(b).

Article 22

NON-DISCRIMINATION

1. Nationals of a Contracting State shall not be subjected in the other Contracting State toany taxation or any requirement connected therewith, which is other or more burdensomethan the taxation and connected requirements to which nationals of that other State in the

same circumstances are or may be subjected.2. The taxation on a permanent establishment which an enterprise of a Contracting state hasin the other Contracting State shall not be less favourably levied in that other State thanthe taxation levied on enterprises of that other State carrying on the same activities. Thisprovision shall not be construed as obliging a Contracting State to grant to residents ofthe other Contracting State any personal allowances, reliefs and reductions for taxationpurposes on account of civil status or family responsibilities which it grants to its ownresidents.

3. Enterprises of a Contracting State, the capital of which is wholly or partly owned orcontrolled, directly or indirectly, by one or more residents of the other Contracting State,shall not be subjected in the first-mentioned State to any taxation or any requirementconnected therewith which is other or more burdensome than the taxation and connectedrequirements to which other similar enterprises of the first-mentioned State are or may besubjected.

4. The provisions of this Article shall apply to taxes which are the subject of thisAgreement.

Article 23

MUTUAL AGREEMENT PROCEDURE

1. Where a person considers that the actions of one or both of the Contracting States resultor will result for him in taxation not in accordance with the provisions of this Agreement,he may, irrespective of the remedies provided by the domestic law of those States,present his case to the competent authority of the Contracting State of which he is anational. The case must be presented within two years from the first notification of theaction resulting in taxation not in accordance with the provisions of the Agreement.

2. The competent authority shall endeavour, if the objection appears to it to be justified andif it is not itself able to arrive at a satisfactory solution, to resolve the case by mutualagreement with the competent authority of the other Contracting state, with a view to theavoidance of taxation which is not in accordance with the Agreement.


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3. The competent authorities of the Contracting States shall endeavour to resolve by mutualagreement any difficulties or doubts arising as to the interpretation or application of theAgreement. They may also consult together for the elimination of double taxation incases not provided for in the Agreement.

4. The competent authorities of the Contracting States may communicate with each otherdirectly for the purpose of reaching an agreement in the sense of the precedingparagraphs.

Article 24

DIPLOMATIC AGENTS AND CONSULAR OFFICERS

1. Nothing in this Agreement shall affect the fiscal privileges of diplomatic agents orconsular officers under the general rules of international law or under the provisions ofspecial agreements.

2. Notwithstanding the provisions of Article 4, individuals who are members of adiplomatic mission or permanent mission or consular post of a Contracting State which is

situated in the other Contracting State or in a third State and who are nationals of thesending State shall be deemed to be residents of the sending State if they are submittedtherein to the same obligations in respect of taxes on income as are residents of that State.

3. The Agreement shall not apply to international organisations, to organs or officialsthereof and to persons who are members of a diplomatic mission, consular post orpermanent mission of a third State, being present in a Contracting State and not treated ineither Contracting State as residents in respect of taxes on income.

Article 25

ENTRY INTO FORCE

1.

This Agreement shall be ratified and the instruments of ratification shall be exchanged atJakarta as soon as possible.2. The Agreement shall enter into force upon the exchange of instruments of ratification and

its provisions shall have effect:

(a) in Indonesia :in respect of income derived on or after 1 January of the year next following that ofthe entry into force of the Agreement;

(b) in Switzerland:in respect of income derived on or after 1 January of the year next following that ofthe entry into force of the Agreement.

Article 26

TERMINATION

This Agreement shall remain in force until terminated by a Contracting State. Either ContractingState may terminate the Agreement, through diplomatic channels, by giving notice of terminationon or before the thirtieth June of any calendar year. In such event, the Agreement shall cease tohave effect:


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(a) in Indonesia :in respect of income derived on or after 1 January of the year next following that in whichthe notice of termination is given;

(b) in Switzerland :in respect of income derived on or after 1 January of the year next following that in which

the notice of termination is given.

In witness whereof the undersigned, duly authorised thereto, have signed this Agreement.

Done in duplicate at Berne this 29th August 1988 in the English, Indonesian and Frenchlanguages, all texts being equally authentic. In case there is any divergence of interpretationbetween the Indonesian and the French texts the English text shall prevail.

PROTOCOL

The Swiss Federal Council and the Government of the Republic of Indonesia have agreed at thesigning of the Agreement between the two States for the avoidance of double taxation withrespect to taxes on income upon the following provisions which shall form an integral part of thesaid Agreement:

1. With reference to Article 5

In respect of paragraph 3 of Article 5 it is understood that the maintenance of a stock of goods ormerchandise for the purpose of delivery or facilities used for delivery of goods and merchandisedo not constitute a permanent establishment as long as the conditions of paragraph 4 (b) of thesame Article are not fulfilled.


In respect of paragraphs 1 and 2 of Article 7, where an enterprise of a Contracting State, having apermanent establishment in the other contracting State, sells goods or merchandise or carries onother business activities in that other State, the profits of that permanent establishment shall notbe determined on the basis of the total amount received by the enterprise, but shall be determinedonly on the basis of that part of the total receipts which is attributable to the actual activity of thepermanent establishment for such sales or such other business activities.However, in case of abusive constructions, it is understood that paragraph 1 of Article 7 shallalso apply if the enterprise sells goods or merchandise or carries on business of the same orsimilar kind as the sales or business undertaken by the permanent establishment, but only if itcan be proved that this permanent establishment has taken a determinant part in these activities.

In the case of contracts for the survey, supply, installation or construction of industrial,commercial or scientific equipment or premises, or of public works, when the enterprise has apermanent establishment, the profits of such permanent establishment shall not be determined onthe basis of the total amount of the contract, but shall be determined only on the basis of that partof the contract which is effectively carried out by the permanent establishment in the State wherethe permanent establishment is situated.The profits related to that part of the contract which is carried out by the head office of theenterprise shall be taxable only in the State of which the enterprise is a resident.


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In respect of paragraph 6 of Article 10 it is understood that the provisions of that paragraph shallnot affect the provisions contained in any production sharing contracts and contracts of work (or

any other similar contracts) relating to oil and gas sector or other mining sector concluded on orbefore 31 December 1983, by the Government of Indonesia, its instrumentality, its relevant stateoil and gas company or any other entity thereof with a person who is a resident of Switzerland.

Done in duplicate at Berne this 29 August 1988 in the English, Indonesian and French languages,all texts being equally authentic. In case there is any divergency of interpretation between theIndonesian and the French texts, the English text shall prevail.

Indoswiss Tax Treaty Explanations

Documents

Transcript of Indoswiss Tax Treaty Explanations