beneficial ownership in taxation: its dynamics and challenges

Center for Indonesia Taxation Analysis

1

Disampaikan dalam Konferensi Tata Kelola Sumberdaya Ekstraktif, “Extracting the Future: Menata Sumberdaya Ekstraktif untuk

Pembangunan Berkelanjutan.” Jakarta, 17 November 2015


Beneficial Ownership in Taxation:

Its Dynamics and Challenges

Yustinus Prastowo Executive Director Center for Indonesia Taxation Analysis (CITA)


Outline

• Background: Treaty Shopping

• Definition of Beneficial Owner

• Discussion of Court Cases

• Beneficial Owner in Indonesia

• Conclusion


Background: Treaty Shopping 1


What is Treaty shopping?

Degrees of acceptability : least acceptable

where obtaining treaty benefits but not a

resident (or true resident) of the State or where used to achieve double non taxation

Source: OECD

"An analysis of tax treaty provisions to

structure an international transaction or

operation so as to take advantage of a

particular treaty“


Example 1: Treaty Shopping


Conduit Company Scheme Stepping Stone Conduit

Jain, Saurabh. (2013). Effectiveness of the Beneficial Ownership Test in Conduit Company

Cases. The Netherlands: IBFD


Common Conduit Strategies

Access reduced withholding tax (interest, royalties and dividends)

Access higher treaty threshold for taxing services

Capital gain

Tax credits

Tax advantage of tax sparing

Hide information

Conduit Company is

interposed between the

source state and the resident

state with the purpose of :

(1) Avoiding of reducing

source state withholding tax

by obtaining the benefit of the

(partial or full) withholding tax

exemption under the treaty

between the source state and

the state where the conduit

company is located;

(2) Passing on the income

subject to the source state

withholding tax concession to

the taxpayer in the residence state.


Conduit schemes - Policy Considerations

Some actively promote use of

their countries as conduits for

the economic activity and tax generated (dangerous strategy)

Features of their tax rules may make them attractive:

No tax on certain inbound/outbound income

Ability to recharacterise income to avoid tax (equity/debt switches) e.g. lack of thin cap rules

Bank secrecy


Responses to Conduit Arrangements

Include beneficial ownership

requirements Especially in Articles 10, 11, 12

Include anti-abuse provisions:

– General Anti-Avoidance Rule

(GAAR)

– Specific Anti-Avoidance Rule

• limitation of treaty

benefits

• Subject to tax tests • Deny specific benefits


Definition of Beneficial Owner 2


Tax Sharing Rules: Dividend/Interest/Royalties

12

Art. 10 (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 recipient is the beneficial owner of the dividends the tax so charged shall not exceed (...)

State of Source limited right to tax (“shall not exceed” e.g.

10%)

Art. 23 (Elimination of Double Taxation) State of Residence relief of double taxation

Ketentuan dividend = interest, kecuali untuk royalty “shall be taxable only”

Art. 10 (1) Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

State of Residence unlimited right to tax

If the recipient is the BENEFICIAL OWNER


Meaning of “Beneficial Owner” • Not defined in the Model

• Commentary (Art 10, paragraphs 12 - 12.1):

– Included to “clarify the meaning of the words “paid to ... A resident”

as they are used in paragraph 1 of the Article.”

– Not an agent or nominee

– Not used in a narrow technical sense, should be understood in its

context and in light of the object and purpose of the Convention,

including avoiding double taxation and the prevention of fiscal

evasion and avoidance. • Person simply acting as “conduit” for another person who in

fact receives the benefit of the income not a beneficial

owner

– Person acting as conduit – “though the formal owner, it has, as a

practical matter, very narrow powers which render it, in relation to

the income concerned, a mere fiduciary or administrator acting on © OECD

September 2013 account of the interested parties”


Meaning of “Beneficial Owner”

• A person who ultimately enjoys the benefit of an asset,

as opposed to the legal owner who may only be a

nominee.

• Looks behind the owner of the title to an asset to find the

"true owner"

• A beneficial owner is one who is free to decide:

– Whether or not the capital or other asset should be used or

made available for use by others

– On how the yields therefrom should be used


Issues on Beneficial Ownership

15

Some court consider the term to have domestic law meaning; others give it an international meaning

Some court treat it as an anti-avoidance concept; others do not

Brian J Arnold

Whether beneficial ownership is a legal as opposed to practical or economic substance test

Charl du Toit

“the Evolution of the Term “Beneficial Ownership” in Relation to International Taxation over the Past 45 Years, dalam BIT, Oktober 2010, hal. 504.

“Tax Treaty News”, dalam BIT, May/June 2009, hal. 175.


Discussion of Court Cases 3


17

Aiken Industry Case

*The case was decided before the term “beneficial owner” was introduced to the OECD Model.




Aiken Industries Case Scheme Aiken Industries Inc v. Commissioner of Internal Revenue

(1)Ecuadorian Lts made a loan to

Mechanical Inc on a promissory note. Since there was no Bilateral Tax Treaty between

US & Bahamas, Mechanical Inc would have to

deduct US domestic withholding tax on interest

payments to Ecuadorian Ltd;

(2) Ecuadorian Ltd interposed

Industrias in the transaction and

transferred Mechanical Inc‟s

promissory note to Industrias in

consideration of a debt outstanding. (As if Back-to-Back loans were made from

Ecuadorian Ltd to Industrias and subsequently

from Industrias to Mechanical Inc);

(3) The transaction was design to

take advantage of the US withholding

tax exemption under Art IX (US-

Honduras Tax Treaty). Accordingly, Mechanical Inc withheld no tax on the interest payments.


The Commissioner alleged (before the US Tax Court) that the existence of Industrias as a corporation should be disregarded for tax purposes because Ecuadorian Ltd was the true owner & the recipient of the interest.

Aiken Industry responded that : Industrias complied with the definition of a corporation and

therefore couldn’t be disregarded. It contended that Industrias received the income as a ‘Honduran Entreprise’.

Therefore the interest payments should be exempt from withholding tax under (US-Honduras Tax Treaty).

Aiken Industry Case

19


As a result, the court held that the interest payments were not exempt from the US withholding tax;

When US Tax Court decided the Aiken Industries Case, neither Art IX (US-Honduras Treaty) nor Art 11 (OECD Model) used the term of „Beneficial Owner‟.

The relevant part on Art IX (US-Honduras Treaty) stated:

“Interest on…notes… from source within one of the contracting states received by a resident, corporation or other entity of the other contracting state not having a permanent establishment… shall be exempt from tax by such former state”

Aiken Industries: The Interpretation of the term “beneficial owner”

20


Then the court interpreted the words “received by” in Art IX (US-Honduras Treaty) according to the language and context of the treaty, and observed:

“...we interpret the terms „received by‟ to mean interest received by a corporation of either of the contracting state as its own not with the obligation to transmit it to another. The word „received by‟ refer not merely to the obtaining of physical possession on a temporary basis of funds representing interest payments from a corporation of a contracting state, but contemplate complete dominion and control over the funds…”

• The words „received by a resident… of other contracting state‟ point to the same person with OECD Model „paid…to a resident of a contract state’. The foregoing interpretation becomes relevant to the approach that, accorfing to the official commentary, the term beneficial owner was introduced to clarify.

• The foregoing observation of the court, in fact illuminates the approach. The court essentially followed the object and purpose of the treaty to llimit its benefits to the contracting states.


21


Because the court used phrase „complete dominion and control‟, the observation implies that in order to qualify for the reduction of withholding tax, the recipient of passive income should a person who owns passive income in a substantive economic sense. Following the object and purpose of limiting treaty benefit, it found:

“… Industrias was merely a conduit for the passage of interest payments from [Mechanical Inc] to [Ecuadorian Ltd]. Industrias had no actual beneficial interest in the interest payments it received, and in substance, [Mechanical Inc] was paying the interest to [Ecuadorian Ltd] which received the interest of the article IX…”

• The court used the term ‘beneficial interest’, which is simply a linguistic variation of the concept of beneficial ownership. The observation shows that the court read the beneficial ownership requirement into the provision.

• The court‟s use of the term ‘beneficial interest’ suggests substantive

economic ownership.


22


23

Indofood Case

*Recent court cases and developments.


Background

In 2002, PT Indofood Sukses Makmur Tbk (Parent), an Indonesia Company, wanted to issue $280 million in 5-year Euro notes;

In order to reduce the 20% Indonesia withholding tax (WHT) on the interest payments, Parent set up a Mauritius subsidiary, Indofood International Finance (Finance) through which the loan was issued;

Under the (1996) Indonesia-Mauritius tax treaty the Indonesian WHT was reduced to 10%;

The $280 million raised by Finance was lent on to Parent on substantially the same terms.

Indofood Case

24


25

Indofood Int. vs. JP Morgan

Indofood Sukses Makmur (Parent)

Indonesia

Indofood International Finance Ltd.

Mauritius

10% WHT

Noteholders (Trustee:

JP Morgan)

0% WHT

20% WHT


Background

June 24, 2004: notice termination Indonesia-Mauritius treaty (entry into force: January 2005);

Effect of termination: increase of WHT to 20%;

August 20, 2004: Finance informed Trustee of its intention to redeem notes;

November 22, 2004: Trustee disagreed and suggested interposition of a Netherlands company “NewCo”.

Indofood Case

26


27

Facts

Indofood Sukses Makmur (Parent)

Indonesia

NewCo The

Netherlands

Note-holders (Trustee:

JP Morgan)

Indofood International Finance Ltd.

Mauritius


Terdapat ketentuan dalam perjanjian bahwa SPV Mauritius hanya diperbolehkan untuk membayar hutangnya kepada noteholders dengan pendapatan yang diterimanya dari Indofood. Dengan kata lain, SPV tidak diperbolehkan menggunakan dananya sendiri untuk melunasi hutangnya kepada noteholders;

Seluruh penghasilan yang diterima oleh SPV Mauritius diteruskan kepada noteholders atau dengan kata lain SPV Mauritius tidak mendapatkan spread sama sekali;

Di atas kertas, pembayaran SPV Mauritius kepada noteholders dilakukan sehari setelah SPV Mauritius menerima pembayaran dari Indofood. Pada faktanya, Indofood melakukan pembayaran langsung kepada noteholders. Dengan kata lain, tidak terdapat aliran dana melalui SPV Mauritius;

SPV Mauritius mempunyai substansi ekonomi yang kecil (tidak mempunyai ruang kantor maupun pegawai) di Mauritius.

28

Indofood case - Background


29

Interest Article (Indonesia – the Netherlands)

1. Interest arising in (Indonesia) and paid to a resident of (the Netherlands) may be taxed in (the Netherlands)

2. However, such interest may also be taxed in (Indonesia) and according to the laws of (Indonesia), but if the beneficial owner of the interest is a resident of (the Netherlands), the tax so charged shall not exceed 10 per cent of the gross amount of the interest.

3. … 4. Notwhitstanding the provision of paragraph 2, interest arising in (Indonesia) shall

be taxable only in (the Netherlands) if the beneficial owner of the interest is a resident of (the Netherlands) and if the interest is paid on a loan made for a period of more than 2 years..


Dengan mempertimbangkan OECD Commentary dan pendapat Philip Baker sebagai saksi ahli, majelis hakim berpendapat bahwa konsep beneficial owner harus mempunyai makna internasional, yaitu suatu makna yang terlepas dari pengertian teknis hukum domestik negara-negara yang mengadakan tax treaty;

Dalam mencari makna sebenarnya atas konsep beneficial owner, majelis hakim melalukan pendekatan “substance over matter”, yaitu apakah “secara praktis atau komersil” SPV Belanda akan mendapatkan hak sepenuhnya untuk menerima manfaat dari penghasilan yang diterimanya;

Dalam perjanjian Trust Deed, SPV Belanda diwajibkan (bound) untuk meneruskan penghasilan yang diterimanya kepada noteholders. Secara “praktis” SPV Belanda tidak akan mendapatkan hak sepenuhnya (full privelege) untuk merima manfaat dari penghasilan tersebut. Manfaat satu-satunya yang dapat diperoleh SPV Belanda atas penghasilannya adalah untuk membayar hutangnya SPV Mauritius.

30

Decision


31

Indofood Case vs. Prevost Case

Faktor yang menentukan dalam pengujian konsep beneficial owner oleh kasus yang dibahas, adalah apakah perusahaan perantara mempunyai keleluasaan (discretion) dan pengendalian (control) atas dana yang diterimanya. Hal ini diuji antara lain dengan pertanyaan, apakah perusahaan perantara diwajibkan secara kontrak untuk meneruskan pembayaran kepada pemegang saham dan apakah perusahaan perantara benar-benar menerima aliran dana masuk ke dalam akun bank yang dimilikinya.

Economic or Legal Approach???


32

Prevost Case


Situation in Canada after Indofood Case

33

Canada

Treaty Partners

Dividend interest royalties

resident

WHT with reduced rate

Beneficial

owner???


Facts

No office;

No employees, except only board of director;

No asset other than the shares of Prevost;

There is no contractual/legal obligation to transfers dividend received to shareholders;

Prevost distributes at least 80% of their profits to shareholders;

Dutcho and Prevost is not part of Shareholding Agreement (Volvo and Henleys).

Prevost Case

34

Prevost

Dutcho

Volvo (55%)

Henlys (45%)

Kanada

Belanda

Swedia Inggris

5%

10% 15%

BO?

0% 0%


35

Keputusan Hakim

Hakim CTC telah mempertimbangkan OECD Model beserta Commentaries, VCLT, hukum domestik di negara common law maupun civil law dan pendapat saksi ahli (v. Weeghel, Raas, dan Luthi), sehingga pada akhirnya berkesimpulan bahwa beneficial owner mempunyai makna yang internasional (international meaning).

Beneficial owner adalah: (i) pihak yang menerima manfaat atas dividen yang

diterimanya (own use and enjoyment), dan pihak yang menanggung risiko (assumes risk) beserta mempunyai penguasaan (control) atas dividen yang diterimanya.


Faktanya adalah bahwa Holdco bukan merupakan pihak dalam Shareholder Agreement dan berdasarkan akte pendirian Holdco, dapat disimpulkan bahwa Holdco tidak mempunyai kewajiban untuk membayarkan dividen kepada para pemegang saham. (paragraf 103-104 dalam keputusan CFC)

Holdco merupakan pemilik saham Prévost yang sah. Penghasilan dividen yang diterima Holdco dari Prévost, merupakan hak milik Holdco yang dapat digunakan oleh Holdco untuk kepentingannya sendiri (seperti membayar kreditur pihak ketiga). Jika Holdco menggunakan penghasilan dividennya tersebut untuk membayarkan dividen kepada para pemegang saham, maka hal ini dilakukan berdasarkan keputusan manajemen Holdco sendiri.

36

Keputusan Hakim (Lanjutan)


Subject to the requirements in article 4 of the OECD Model, the nature of the recipient’s connection with the residence state is immaterial (e.g. the recipient of the income carries on a commercial activity);

The beneficial ownership requirement is conceptually different from an active trade and business;

A definition of BO that implies a substance requirement (personnel, offices etc.) is not compatible with the literal interpretation of BO.

Prof. Dr. Robert Danon‟s Opinion regarding Substance Requirement

37


38

Velcro Cases


39

Facts


VIBV merupakan suatu perusahaan yang merupakan wajib pajak dalam negeri (resident) di Belanda.

VIBV merupakan pemilik paten, rahasia dagang, hak cipta, dan know-how terkait dengan merek Velcro dan teknologi pengikat Velcro.

Pada tahun 1987, VIBV memberikan lisensi hak menggunakan aktiva tidak berwujud tersebut kepada Velcro, sebagaimana disepakati dalam License Agreement.

Sebagai imbalan, Velcro membayarkan royalti tertentu kepada VIBV. Pembayaran royalti tersebut dikenakan withholding tax sebesar 10% sesuai dengan tax treaty antara Belanda dan Kanada.

40

Facts

Sebelum Restrukturisasi


Pada tahun 1995, grup Velcro melakukan restrukturisasi, akibatnya status wajib pajak dalam negeri VIBV berubah dari wajib pajak dalam negeri Belanda menjadi wajib pajak dalam negeri Belanda Antilles. Antara Kanada dan Belanda Antilles tidak terdapat tax treaty, sehingga jika pembayaran royalti dilakukan oleh Velcro maka tarif withholding tax yang berlaku menjadi 25% sesuai dengan ketentuan domestik Kanada.

VIBV melakukan penyerahan hak (assignment of rights) atas aktiva tidak berwujud tersebut kepada Holdco, suatu perusahaan yang merupakan wajib pajak dalam negeri Belanda. Sesuai dengan Assignment Agreement tersebut, Holdco menjadi pemegang hak atas aktiva tidak terwujud, sehingga Velcro sekarang wajib membayarkan royalti kepada Holdco dan bukan lagi kepada VIBV. Namun demikian, VIBV tetap merupakan pemilik atas aktiva tidak berwujud tersebut.

Holdco diwajibkan untuk membayarkan royalti yang wajar (arm’s length) kepada VIBV dalam 30 hari setelah Holdco menerima pembayaran royalti dari Velcro. Sedangkan, Velcro tetap membayarkan jumlah royalti yang sama seperti dalam License Agreement, namun sekarang kepada pihak yang berbeda, yaitu Holdco

41

Facts

Saat Restrukturisasi


Velcro tetap menerapkan tarif withholding tax sesuai dengan ketentuan tax treaty antara Belanda dan Kanada (yaitu 10% sampai dengan tahun 1998, namun sejak 1998 tarif withholding tax diturunkan menjadi 0%);

Sedangkan pembayaran Holdco kepada VIBV tidak dikenakan withholding tax sesuai dengen ketentuan domestik Belanda.

42

Facts

Setelah Restrukturisasi


43

Pertimbangan Hakim

Beneficial Owner TEST

possession use risk control

Ketentuan-ketentuan dalam perjanjian antara pihak-pihak

(Licenses Agreement, dan Assignment Agreement) Aliran dana (flow of funds); dan Laporan keuangan dan rekening koran Bank

pembuktian


Royalti dibayarkan oleh Velcro ke dalam akun bank milik Holdco. Bunga yang timbul atas dana yang masuk dalam akun bank tersebut juga dimiliki oleh Holdco;

Penghasilan royalti yang diterima oleh Holdco tidak dipisahkan dari dana lainnya yang dimiliki oleh Holdco;

Holdco menggunakan dana yang dimilikinya (tanpa instruksi dari pihak lain) juga untuk membayar hutang dan pengeluaran-pengeluaran lainnya; dan

44

Pertimbangan Hakim

Syarat “possession” terpenuhi


Holdco dapat menggunakan penghasilan royalti yang diterimanya dengan bebas seperti untuk membayar hutang, menabung (menerima bunga), atau investasi ke anak perusahaan;

Dalam perjanjian-perjanjian kontrak, Holdco tidak dibatasi sama sekali untuk menggunakan dananya sesuai dengan keputusan Holdco sendiri.

45

Pertimbangan Hakim

Syarat “use” terpenuhi


Holdco memiliki aktiva tersebut (dana dari penghasilan royalti) dalam laporan keuangannya;

VIBV tidak memiliki hak prioritas atas klaimnya terhadap aktiva Holdco. Dengan kata lain, VIBV mempunyai status yang sama dengan kreditur-kreditur Holdco yang lainnya.

Holdo menanggung risiko forex atas penghasilan royalti tersebut.

46

Pertimbangan Hakim

Syarat “risk” terpenuhi


Majelis hakim berpendapat bahwa berdasarkan keputusan dalam kasus Prévost, suatu conduit company adalah suatu perusahaan perantara yang tidak mempunyai keleluasaan sama sekali dalam mengambil keputusan (“absolutely no discretion”).

Walaupun keleluasaan Holdco dapat dibatasi namun tidak dapat dikatakan bahwa Holdco tidak mempunyai keleluasaan sama sekali.

47

Pertimbangan Hakim

Kesimpulan


48

Resume

Indofood Prevost Velcro

Substansi ekonomi perusahaan perantara (ruang kantor atau pegawai)

Minim Minim

Tidak diketahui

Apakah terdapat kewajiban kontrak (legal obligation) perusahaan perantara untuk meneruskan penghasilan yang diterima kepada pemegang saham?

Ya Tidak Ya

Jika Ya, Seberapa besar? 100% dari penghasilan yang diterima

- Sebagian besar (+/- 90%) dari penghasilan yang diterima

1

2


Indofood Prevost Velcro

Jika Ya, apakah perusahaan perantara mempunyai kewajiban kontrak lainnya (kreditur pihak ketiga)

Tidak - Ya, perusahaan perantara juga mempunyai hutang

Apakah perusahaan perantara menerima dana melalui akun bank yang dimilikinya?

Tidak, pembayaran tanpa melalui akun bank perusahaan perantara

Ya Ya

Apakah perusahaan perantara mempunyai keleluasaan (discretion) untuk menggunakan dananya sesuai dengan keputusannya sendiri?

Tidak Ya Ya, tetapi dengan batasan

49

Resume

3

4


Beneficial Owner in Indonesia

4


51

Indonesia: the Meaning of Beneficial Owner

The Meaning of Beneficial Owner

SE-04/PJ.34/2005 Pemilik sebenarnya dari penghasilan berupa dividen, bunga dan atau royalti….

SE-03/PJ.03/2008 Pemilik yang sebenarnya dari penghasilan berupa dividen, bunga, dan/atau royalti…

PER - 25/PJ/2010 Pemilik yang sebenarnya atas manfaat ekonomis dari penghasilan

Pasal 26 ayat (1a) UU No. 36 Tahun 2008

… yang sebenarnya menerima manfaat dari penghasilan tersebut


52

Indonesia: BO channeled with Treaty Abuse

Pasal 3 PER - 25/PJ/2010

Penyalahgunaan P3B…dapat terjadi dalam hal:

• Transaksi yang tidak mempunyai substansi ekonomi dilakukan dengan menggunakan struktur/skema sedemikian rupa dengan maksud semata-mata untuk memperoleh manfaat P3B;

• Transaksi dengan struktur/skema yang format hukumnya (legal form) berbeda dengan substansi ekonomisnya (economic substance) sedemikian rupa dengan maksud semata-mata untuk memperoleh manfaat P3B; atau

• Penerima penghasilan bukan merupakan pemilik yang sebenarnya atas manfaat ekonomis dari penghasilan (beneficial owner).


53 Indonesia: BO channeled with Treaty Abuse

Pasal 4 PER - 25/PJ/2010

Dimaksud BO, perusahaan yang memenuhi persyaratan:

1) Pendirian perusahaan di negara mitra P3B atau pengaturan struktur/skema transaksi tidak semata-mata untuk pemanfaatan P3B;

2) (pendirian perusahaan atau pengaturan struktur/skema transaksi tidak semata-mata ditujukan untuk pemanfaatan P3B; dan) ini dr yg PER 2010

3) Kegiatan usaha dikelola oleh manajemen sendiri yang mempunyai kewenangan yang cukup untuk menjalankan transaksi;

4) Perusahaan mempunyai pegawai;

5) Mempunyai kegiatan usaha aktif;

6) Penghasilan yang bersumber di Indonesia terutang pajak di negara penerimanya; dan

7) Tidak menggunakan lebih 50% dari total penghasilannya untuk memenuhi kewajiban kepada pihak lain dalam bentuk, seperti: bunga, royalti, atau imbalan lainnya.


54


Alternative/Challenge

5


Beneficial Ownership

Concept

Economic Perspective

Companies can never be entitled to treaty benefits

Tax levied on corporation’s income should be integrated

with any tax levied on its shareholders

Legal Perspective

Income Tax should be levied at the level of the

corporation and not at the level of shareholders

Companies hold income beneficially because they exist as separate legal entities from their

shareholders.

The NatWest Ruling: Paradoxial

Perspectives

Inclined towards the Economic Perspective, but somehow

influenced by conventional view (legal perspective)

The Application of the Beneficial Ownership test requires an analysis of facts from an economic perspective

*OECD Model adopts a legal perspective because the latter is useful for trade and commerce




Dominion

Surrogate test

Substantive Business Activity

Beneficial Ownership

Determine whether a conduit company is entitled to a reduction in Withholding Tax

Investigate whether an interposed company is involved in a substantive business activity.

Determine whether a conduit has dominion over passive income derived from the source company




Conclusion

6


59

Conclusion

Beneficial ownership is a legal issue, an economic issue, or both? A legal approach to the concept seems to be preferable and will reduce the existing

confusion. To achieve this, “beneficial ownership” should be detached from broad anti-avoidance clauses, although this does not seem to be the prevailing view in case law of the jurisdiction studied (Adolfo Martin Jimenez:2012).

Contrary: the legal approcah will detached the reality of benefit owner with the legal form, so substantive business approach is more favorable. (Saurab Jain:2014).

The problem of “ectopia”/dislocation of income (John Pebble:2007).

“is to be given an international fiscal meaning not derived from domestic laws of the contracting States.”

UK Court of Appeal in Indofood Case


60

Conclusion

The concept of beneficial ownership was merely a condition (like residence) for entitlement to treaty benefits. Accordingly, beneficial ownership is not an aspect of the abuse of law doctrine, i.e. beneficial ownership and abuse are two distinct concepts.

Brian J. Arnold, “Tax Treaty Case Law News – A Trio of Recent Cases on Beneficial Ownership”, dalam Bulletin for International Taxation, IBFD, June 2012, hal. 323

Swiss Federal Administrative Tribunal


What should be done?

• Make clearer the definition of “beneficial ownership” concept under its dynamics and recent trend of its international meaning.

• Indonesia to formulate and integrate the GAAR (General Anti Avoidance Rule) into its Income Tax Law.

• GAAR consists substance-over-form principle and anti abuse principle.

• Harmonization between fraus legis and fraus conventionis the domestic law with tax treaty.

• To codify the Tax Court decision and enlightening the Indonesia tax practice with the best practice of international tax practice/court.

• Toward New International Tax Cooperation or Coopetition?

61


62

T E R I M A K A S I H


Graha Mustika Ratu 1th Floor Room 101

Jalan Gatot Subroto, Pancoran Jakarta Selatan

beneficial ownership in taxation: its dynamics and challenges

Economy & Finance