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ABOUT RSM

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• 700+ staff

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• 2 offices

• 36 years

• #3 in number of listed entities

audited

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in Asia Tax Award 2020

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When you are under pressure, quick and easy communication is of paramount

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informed team, exactly when and where you need them.

QUICK ANSWERS

The partners of our member firms around the world know each other

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colleagues in other international offices, and draw on those close

relationships to get you quick answers and fast decisions.

MAXIMIZING POTENTIALS

When you work with us, you have a team of

advisers who are constantly looking out for your

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analysis of your markets, laws and customs, we

will identify opportunities and challenges before

they arise. We will help you analyze risk,

establish the right direction of your business and

maximize your potential, supporting you every

step of the way.

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YOUR BUSINESS

We devote a great deal of time, thought and energy to understanding

you and your organization. We will immerse ourselves in your business

so we know who you are, what you believe in and what motivates you.

Your management team will receive high quality feedback on issues

that are pertinent to your business, together with personalized reports

and advice from experts in your sector.

INDONESIA – SINGAPORE DOUBLE TAX AGREEMENT (“DTA”)

RSM Webinar Series Thursday, 12 August 2021

Nick Graham

Managing Partner – Business Services Practice

Profile of Indonesia – Singapore DTA

Indonesia and Singapore DTA has been effectively applied for almost 30 years:

Year 1990 Year 2020

• DTA was signed in 1990 and was effectively applied on

1 January 1992

• Singapore has established itself as a regional services

and investment hub

• Singapore investment into Indonesia was US$6.5 billion

(2019) increasing to US$9.8 billion (2020)

• The renegotiated DTA was signed on 4 February 2020

• The revisions reflect changes to the current international

tax landscape

• Indonesia ratified on 11 May 2021, through Presidential

Regulation No. 35 and Singapore ratified on 23 July

2021

When are DTA Changes Effective?

In Indonesia In Singapore

✓ In respect of taxes withheld at source: 1 January

2022

✓ In respect of other taxes: for any tax year

commencing on or after 1 January 2022; and

✓ In respect of Article 26 (Exchange of Information):

immediately apply on 23 July 2021

✓ In respect of taxes withheld at source: 1 January

2022

✓ In respect of tax chargeable (other than taxes

withheld at source): 1 January 2023

✓ In respect of Article 26 (Exchange of Information):

immediately apply on 23 July 2021

Article of 29 Indonesia – Singapore DTA

The Major Changes of DTA

Provisions Current DTA Updated DTA

Interest 10% 10%

Dividends (corporate shareholder

owning at least 25% of the share

capital) 10% 10%

Dividends (all other cases) 15% 15%

Royalties

15%

▪ 8% for royalties for the use of, or the right to use,

industrial, commercial, or scientific equipment, or for

information concerning industrial, commercial, or

scientific experience

▪ 10% for royalties for the use of, or the right to use,

any copyright, patent, trade mark, design or model,

plan, secret formula or process

Branch Profit Tax (BPT) 15%

(A company resident in Singapore

deriving income from PSC is subject

to Most Favoured Nation clause)

10%

(This tax rate does not over-ride any terms (re: BPT) in

PSC or mining contract of work)

Other Major Amendments of DTA


Fiscal Domicile/Tax Residence –

tie-breaker tests for individuals

• Permanent home

• Centre of vital interests

• Habitual abode

• Mutual agreement

Now adds State where a National, before requiring

mutual agreement.

Definition of Permanent

Establishment (PE) re: a building

site or construction, installation, or

assembly project

Shall be deemed as PE if it exists for

more than 183 days.

• Shall be deemed as PE if it is more than 183

days

• 3 months shall apply for assembly or installation

project performed by other than the main

contractor

Definition of PE re: supervisory

activities for a construction,

installation, or assembly project

Shall be deemed as a PE if the activities

occur for more than 6 months.No change.

Definition of PE re: provision of

services by employee or other

person

Shall be deemed as a PE if the activities

continue for a period/periods aggregating

more than 90 days within any 12-month

period.

No change.



Income from immovable property re:

subject to income tax

Income earned from immovable property

is taxable in the country where it is

located.

Same, while expressly including income earned

from agriculture and forestry.

Associated enterprises re:

clarification of corresponding

adjustment for transfer pricing

Not regulated. Regulated under Article 9 item 2 and 3.

Interest re: exemption from tax

Earned by government institution:

governed under Article 11 (3).

The list is expanded to include special purpose

investment funds, BPJS funds and specific entities

owned by the Singapore Government.

From government-issued bonds or

debentures: governed under Article 11

(3).

Deleted – now taxable with a rate of 10% WHT,

unless otherwise exempt under Article 11 (3).

Interest re: penalty charge for late

payment not regarded as interest Not regulated.

The definition of interest specifically excludes

penalty charges for late payment.



Royalty re: the sale (alienation of

IP)

Alienation of most IP subject to

15% WHT.

Deleted – not classified as royalty for DTA purposes. Tax will

depend on other provisions in the DTA.

Capital gains (general)Not regulated – and therefore

subject to other provisions in

the DTA.

• The other State may tax gains:

a) From the alienation of immovable property in that State;

b) From the alienation of movable property related to a PE in

that State

• The State of residence has sole taxing right on gains from

aircraft and ships operated in international traffic, including

movable property pertaining to the operation of such ships or

aircraft.

• Other gains are only taxable in the State where the alienator is

a resident.

Capital gains (alienation of

shares)

Not regulated – and therefore

subject to other provisions in

the DTA.

• Gains from alienation of shares may be taxed in the other

State if more than 50% of their value directly/indirectly derives

from immovable property in that other State and the alienator

owned at least 50% of the total issued shares.

• Indonesia retains its taxing rights on the alienation of shares of

a company that is resident in Indonesia and traded on the IDX

(0.1%, unless founder shares).

Understanding

Indonesia’s

position re taxing

gains on alienation

of shares

Implementation of Article 13 of Indonesia – Singapore Tax Treaty

Re: Gains from Alienation of Shares – Allocation of Indonesia’s taxing rights

Is the Company resident in Indonesia and traded on the IDX?

Is more than 50% of share value directly/indirectly derived from

Immovable Property in Indonesia?

Does the alienator own at least 50% of total issued shares?

Is the Immovable Property wholly in which the Company carries

on its business?

Is the alienation in framework of a reorganisation, merger,

scission, etc?

Taxable @ 5%

No

Yes

Yes

No

No

Yes

Taxable

under

282/KMK

Not taxable

No

No

Yes

Yes



Independent professional services re:

criteria to be met so that income is

taxable

If the professional is present for more than 90

days in any 12-month period.

• If the professional has a fixed base

regularly available, or

• If the professional is present for any

period/periods equal to or exceeding in the

aggregate 90 days in any period

commencing or ending in the fiscal year

Dependent personal services re:

criteria to be met so that income is

taxable

Taxable in source State if:

• the employee is present in that State for

more than 183 days in the calendar year

concerned, and/or

• the remuneration is paid by/on behalf of

an employer in that State, and/or

• the remuneration is borne by a PE in that

State

• Same, but:

• Period is linked to any 12-months period

and not calendar year

• Employer is not required to be tax resident

in the employee’s resident country to avoid

the income being subject to tax

Directors Fees re: right to tax

Only refers to directors fees. Expanded to include management board and

supervisory board.

Not applicable for income from managerial or

technical services. No longer exists.



Pensions re: right to tax

May be taxed in the State where the

pension/similar arises. Does not prevent

taxation in the Other State.

Same, but with stipulation that pensions

made from a public scheme (i.e. Government

scheme) in a State shall only be taxable in

that State.

Income not expressly mentioned or

Other Income re: right to tax

The other State may tax the income by

applying the laws of that other State.

Resident country has taxing rights to its

resident’s income, except where the source is

in the other State.

Exchange of Information In accordance with OECD Model Convention

1977.

In accordance with OECD Model Convention

2017.

Anti-tax avoidance Not regulated. Regulated to emphasize the Principal

Purpose Test (PPT).

Implication of DTA

❑ Any proposed sale of restructuring of a shareholding in an Indonesia company might be benefit from the

delaying the execution until the tax treaty comes into effect – DTA applies effectively on 1 January 2022

for Indonesia.

❑ Singapore investors are treated similarly to Hong Kong investors when considering taxes arising from

an equity investment into an Indonesian private company – if the selling shareholders hold less than

50% of the issued capital for the sale of shares in an immovable asset company.

❑ The updated DTA reflects certain provisions in MLI that emphasizes the PPT that prevents access to tax

treaty benefits if obtaining that benefit was one of the principle purposes of any arrangements or

transactions that resulted in that benefit, unless the granting of benefits is compatible to object and

purpose of DTA.

MULTILATERAL INSTRUMENTS

RSM Webinar Series Thursday, 12 August 2021

Ichwan Sukardi

Managing Partner - Tax Practice

Key Milestones for MLI

14 November 2016

More than 100 jurisdictions

(including Indonesia) concluded

the negotiation of the MLI

20167 June 2017

Indonesia, as one of the

68 territories, participated in

the formal signing of the

MLI in Paris

201713 November 2019

Indonesia issued the

Presidential Regulation Number

77 Year 2019 to ratify the MLI

201928 April 2020

Indonesia deposited its

instrument of ratification for

the MLI with the OECD

2020

• Austria, Isle of Man, Jersey, Poland and

Slovenia were the first five jurisdictions

that deposited instrument of ratification

• MLI first enters into force for first five

jurisdictions from 1 July 2018, and first

effect into effect for certain jurisdictions

from 1 January 2019

Remarkable milestones have been achieved through the past 4 years since the first conclusion of the MLI in 2016:

Status Tracker of MLI

Global Indonesia

✓ 95 Jurisdictions have signed up for MLI – covering

over 1,650 bilateral tax treaties.

✓ 64 jurisdictions have deposited their instrument of

ratification and MLI considered “entry into force”.

✓ 31 jurisdictions have have chosen to apply

mandatory binding arbitration in their Covered Tax

Agreement (CTA).

✓ There are in total 2,807 Notified Agreement, and

1,687 Matched Agreement – 1,120 Agreements are

under “one-way” or “waiting” list.

✓ OECD MLI Status Tracker is available to keep track

of the status of the MLI implementation around the

globe.

✓ 70 tax treaties within Indonesia’s Treaty Network.

✓ Out of 70 tax treaties, 47 tax treaties were submitted

as CTA by Indonesia.

✓ Out of 47 CTA, 39 jurisdictions also chosen

Indonesia as their CTA - and 22 jurisdictions have

ratified MLI.

✓ Instrument of ratification deposited by Indonesia on

28 April 2020 –hence it has “entry into force” from

1 August 2020.

✓ Official “entry into effect” for withholding tax and

other taxes may start from 1 January 2021 – and 1

February 2021 for others.

Status Tracker of MLI (cont’d)

• Six have not signed MLI

• Two have signed MLI but have not

included Indonesia as their CTA –

Switzerland and Norway

• Out of the remaining, 22 have ratified

their MLI (star marked)

*

*

*

*

*

* *

*

*

*

*

**

*

*

*

*

*

*

**

*

Out of 47 Jurisdictions submitted by Indonesia - 39 chosen Indonesia as their CTA – and 22 have ratified MLI:

Overview of MLI

The MLI is an outcome of

BEPS Action 15 - it is

designed to swiftly implement

the tax treaty-related

measures, without the need to

renegotiate each double tax

treaty

MLI would modify the

existing Matched Provision

DTA in the following forms:

• “in place of…”

• “applies to or modifies…”

• “in the absence of….”

Broad Construct of MLI

Set out the scope of MLI and the interpretation of terms used thereinArticle 1 & 2

Deal with BEPS-related treaty measuresArticles 3 to 17

Cover provisions related to mandatory binding arbitrationArticles

18 to 26

Contain procedural provisions such as provisions relevant to

adoption & implementation of the MLI including ratification, entry into

force, entry into effect dates, withdrawal, etc

Articles

27 to 39

Overview of MLI (cont’d)

The extent to which MLI

modifies an existing tax

agreement depends on

the MLI Positions of the

Contracting Jurisdictions

and the corresponding

application of the

mechanical provisions of

the MLI…

Structure of the MLI

Minimum Standard MLI Provision Optional MLI Provisions

Signatories of the MLI are required to adopt

MLI provisions forming part of the agreed

minimum standards:

• MLI Articles 6 and 7 reflect the minimum

standard for prevention of treaty abuse

under BEPS Action 6

• MLI Article 16 reflects the minimum

standard for improvement of dispute

resolution under BEPS Action 14

Signatories can opt into additional provisions

in the MLI. The impact will depend upon the

“matching choices” made by both jurisdictions.

Optional changes to tax treaties in the MLI

include changes to modify tax treaties in

respect of:

• Permanent establishments (PEs)

• Transparent entities

• Residency tiebreakers

• Minimum shareholding periods

• Capital gains derived from immovable

property and,

• Mandatory binding arbitration

Opting out of these MLI provisions (forming

part of agreed minimum standards) is

possible only in limited circumstances

21

Overview of MLI – Indonesia’s position

Source:

MLI socializations slides organized by Ministry of Finance

Overview of MLI (cont’d)

To assess the “matching choices” made by

Contracting Jurisdictions, and their effects to existing

tax treaties – OECD provided the MLI Matching

Database (beta) as illustrated on the left (e.g.

Indonesia and Singapore):

The Matching Database projects on how the MLI

modifies a specific tax treaty covered by the MLI by

matching information from Signatories' MLI Positions

https://www.oecd.org/tax/treaties/mli-matching-database.htm

https://www.oecd.org/tax/treaties/mli-matching-database.htm

Key Impact Areas for Indonesia Tax Treaties

Key notifications in Indonesia Tax Treaties

Preventing tax treaty abuse

Purpose of CTAImproving dispute

resolution

• Minimum standard under BEPS

Action 6 to tackle treaty abuse,

i.e., insertion of new preamble

and principal purpose test

(PPT) in all Indonesia CTAs

• PPT to replace/supersede

existing general anti-abuse

provisions in CTAs, or to be

added in the absence of

such provisions

• The purpose of DTA does not

support the situation of

“Double non-taxation” as a

result of tax avoidance and tax

evasion

• Improved mutual agreement

procedure (MAP) outcomes

[Minimum standard under

BEPS Action 14]

Structure of the MLI – minimum standard

Article 6: Purpose of Covered Tax Agreement

The preamble of Indonesia – Australia Treaty

The Government of the Republic of Indonesia and the Government of Australia, desiring to conclude an

Agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on

income, have agreed as follows:

The above is amended to be as follows by Article 6(1) of the MLI:

Intending to eliminate double taxation with respect to the taxes covered by this agreement without creating

opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including

through treaty-shopping arrangements aimed at obtaining reliefs provided in this agreement for the indirect

benefit of residents of third jurisdictions).


Article 7: Prevention of Treaty Abuse

Article 10(7) Indonesia-Hong Kong Treaty: Mini PPT provisions are also be available in treaty with UK, and

Serbia.

The provisions of this Article shall not apply if it was the main purpose or one of the main purposes of any person

concerned with the creation or assignment of the shares or other rights in respect of which the dividend is paid to

take advantage of this Article by means of that creation or assignment.

The above is amended to be as follows by Article 7 of the MLI: PPT shall apply to the whole Treaty

Notwithstanding any provisions of a Covered Tax Agreement, a benefit under the Covered Tax Agreement shall not

be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts

and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction

that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these

circumstances would be in accordance with the object and purpose of the relevant provisions of the Covered Tax

Agreement.


Article 16: Mutual Agreement Procedures (MAP)

Article 16 (1) of the MLI:

The case must be presented within three years from the first notification of the action resulting in taxation not

in accordance with the provisions of the Covered Tax Agreement

The above provision amends any tax treaty provision on MAP that currently limit the submission for

below than three years.

Impacts of MLI Provisions to Taxpayers

Questions to be asked by MNC and challenges:

• Whether the tax treaties that have been claiming

benefits from are part of MLI Signatories?

• What MLI positions / matching choices are

adopted?

• Whether the structure of MNC will likely violate

against the MLI provisions and hence prevent

them from continuing to claim the benefits?

• How will PPT rules interplay with Indonesia’s

general anti-avoidance rules (GAAR)?

• Where a company is a dual resident & is looking to

apply a tax treaty impacted by the MLI, this will

require careful analysis

MLI is now a reality

• Impacts on existing and prospective cross-border arrangements

Immediate action is required

• Analyze the impact of MLI modifications on existing arrangements

MLI impact will grow over the coming years

• MLI PPT will progressively become a powerful tool to deny treaty benefits

Innovative but complex tool

• Dispute/uncertainties/issues will emerge over time

DISCLAIMER

The contents of this webinar is for general information purposes only.

It is not advice, does not reflect the specific circumstances that might

apply for you, and therefore should not be used as a substitute for

professional advice.

RSM INDONESIA

PLAZA ASIA LEVEL 10

JL. JEND. SUDIRMAN KAV.59

JAKARTA 12190 INDONESIA

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