U.S. GOVERNMENT PRINTING OFFICE

WASHINGTON : 

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29–112

" ! SENATE 104TH CONGRESS

2d Session

TREATY DOC.

1996

104–32

TAXATION PROTOCOL AMENDING CONVENTION

WITH INDONESIA

MESSAGE

FROM

THE PRESIDENT OF THE UNITED STATES

TRANSMITTING

PROTOCOL, SIGNED AT JAKARTA JULY 24, 1996, AMENDING THE

CONVENTION BETWEEN THE GOVERNMENT OF THE UNITED

STATES OF AMERICA AND THE GOVERNMENT OF THE REPUBLIC

OF INDONESIA FOR THE AVOIDANCE OF DOUBLE TAXATION

AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO

TAXES ON INCOME, WITH A RELATED PROTOCOL AND EXCHANGE OF NOTES SIGNED AT JAKARTA ON JULY 11, 1988

SEPTEMBER 4, 1996.—Protocol was read the first time and, together with

the accompanying papers, referred to the Committee on Foreign Relations and ordered to be printed for the use of the Senate.

(III)

LETTER OF TRANSMITTAL

THE WHITE HOUSE, September 4, 1996.

To the Senate of the United States:

I transmit herewith for Senate advice and consent to ratification

a Protocol, signed at Jakarta July 24, 1996, Amending the Convention Between the Government of the United States of America and

the Government of the Republic of Indonesia for the Avoidance of

Double Taxation and the Prevention of Fiscal Evasion with Respect

to Taxes on Income, with a Related Protocol and Exchange of Notes

Signed at Jakarta on the 11th Day of July, 1988. Also transmitted

for the information of the Senate is the report of the Department

of State with respect to the Protocol.

This Protocol reduces the rates of tax to be applied to various

types of income earned by U.S. firms operating in Indonesia.

I recommend that the Senate give early and favorable consideration to this Protocol and give its advice and consent to ratification.

WILLIAM J. CLINTON.

(V)

LETTER OF SUBMITTAL

DEPARTMENT OF STATE, Washington, August 30, 1996.

The PRESIDENT, The White House.

I have the honor to submit to you, with a view to its transmission to the Senate for advice and consent to ratification, a Protocol, signed at Jakarta July 24, 1996 (‘‘the Protocol’’), Amending

the Convention Between the Government of the United States of

America and the Government of the Republic of Indonesia for the

Avoidance of Double Taxation and the Prevention of Fiscal Evasion

with Respect to Taxes on Income, with a Related Protocol and Exchange of Notes Signed at Jakarta on the 11th Day of July, 1988.

In many cases, the withholding rates in the existing Convention

significantly exceed those found in Indonesia’s other recent tax

treaties as well as those in most U.S. tax treaties. The rates in the

current Convention place U.S. businesses at a substantial disadvantage in Indonesia relative to competitors from a number of

other countries. With the significant reduction in tax rates on income derived from direct investments, interest and royalties contained in the proposed Protocol, U.S. firms can better compete in

Indonesia.

This Protocol reduces the withholding rates on direct-investment

dividend, interest and royalty income, which are generally 15 percent in the existing Convention, to 10 percent. (As amended by the

proposed Protocol, the Convention would require at least a 25-percent ownership interest to qualify for this reduction in the tax rate.

The withholding rate on dividends paid on portfolio investments

(those representing less than 25 percent of ownership) remains at

15 percent in the proposed Protocol.)

Interest arising in one of the two Contracting States shall be taxable only in the other State to the extent that such interest is derived by: (i) the Government of the other State, including political

subdivisions and local authorities thereof; or (ii) the Central Bank

of the other State; or (iii) a financial institution owned or controlled

by the Government of the other State, including political subdivisions and local authorities thereof.

The proposed Protocol is subject to ratification. It will enter into

force upon the exchange of instruments of ratification and will have

effect with respect to taxes withheld by the source country for payments made or credited on or after the first day of the second

month following entry into force.

This Protocol will remain in force indefinitely unless the underlying Convention is terminated by one of the Contracting States. Ei-
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ther State may terminate the Convention by giving at least six

months prior notice through diplomatic channels.

A technical memorandum explaining in detail the provisions of

the Protocol will be prepared by the Department of the Treasury

and will be submitted separately to the Senate Committee on Foreign Relations.

The Department of the Treasury and the Department of State cooperated in the negotiation of the Protocol. It has the full approval

of both Departments.

Respectfully submitted,

STROBE TALBOTT.
(1)
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