India–Indonesia tax treaty — rates, PE and MLI

The rates, at a glance

Every figure below is taken from the article named beside it, not from a rates table. Read the condition in the same row before you use the rate — in this treaty the condition is usually the whole answer.

Income	Rate	The condition attached to it	Article
Dividends	10 per cent of the gross amount — a single flat ceiling, printed in the instrument as '10 % (ten per cent)'. The condition is that the beneficial owner of the dividends be a resident of the other Contracting State. Art. 10(2).	None. There is no shareholding threshold and no lower tier.	Article 10, paragraph 2
Interest	10 per cent of the gross amount, conditional on the beneficial owner of the interest being a resident of the other Contracting State. Art. 11(2).	The exemptions are in the article itself, at Art. 11(3), and the trigger is the strict two-limb one: interest is exempt in the source State 'provided that it is derived and beneficially owned by' one of the…	Article 11, paragraph 2 and 3
Royalties	10 per cent of the gross amount, conditional on the beneficial owner being a resident of the other Contracting State. Art. 12(2). A single flat ceiling for royalties and fees for technical services alike.	Art. 12(3)(a) is the full wide royalty definition including the broadcasting limb and the equipment limb, so equipment hire is a royalty at 10 per cent. Art. 12(5)(b) contains A second source rule of the…	Article 12, paragraph 2
Fees for technical services	10 per cent of the gross amount — the same flat ceiling as royalties, Art. 12(2).	Art. 12(3)(b): 'fees for technical services' means payments of any kind, other than those mentioned in articles 14 and 15 of this agreement, as consideration for managerial or technical or consultancy…	Article 12, paragraph 2 and 3(b)

Status

In force	5 February 2016 — the Agreement and its Protocol were both signed at New Delhi on 27 july 2012 and entered into force on the date of the later of the two notifications through diplomatic channels under Art. 30(2). Effect: in India in respect of income derived in any fiscal year beginning on or after 1 april 2017; in Indonesia in respect of taxes withheld at source for amounts paid or credited on or after 1 January 2017, and in respect of other taxes for any tax year commencing on or after 1 January 2017. Art. 30(4) terminates the earlier India-Indonesia Agreement signed at jakarta on 7 august 1987 when the new Agreement takes effect. Note the long gap between signature (2012) and entry into force (2016).
Given effect by	Notification No. S.O. 1144(E) [No. 17/2016 (F. No. 503/4/2005-ftd-II)], dated 16-3-2016 — issued under s.90 of the Income-tax Act 1961. The Agreement covers taxes on income only and Art. 2(3) lists a single tax on each side: for India, 'the income tax, including any surcharge thereon'; for Indonesia, 'the income tax'. There is no capital article. Warning on the citation line: the Introduction reads 'Notification : No. S.O. 1144(E) [no.17/2016 (F.no.503/4/2005-ftd-II)], dated 16-3-2016, As Amended by notification no. GSR 77(E), dated 4-2-1988'. The purported amending notification is dated 4 february 1988 — twenty-eight years before the notification IT is said to amend, and twenty-four years before the Agreement was even signed. G.S.R. 77(E) of 1988 can only relate to the superseded 1987 Agreement. This is an error in the citation line and it must not be carried into a published page.
Modified by the MLI	No synthesised text was found for this treaty in the source searched.
Principal purpose test	No MLI principal purposes test — there is no Synthesised Text for Indonesia in the sources used here. What exists is the bilateral main-purpose test in Art. 24(2), which was negotiated into the treaty in 2012 and remains fully in force and unmodified. Unlike Norway, Poland and Finland, where the MLI PPT replaced the bilateral article, the Indonesian Article 24 stands intact — all three paragraphs of it.

Dividends

Rate	10 per cent of the gross amount — a single flat ceiling, printed in the instrument as '10 % (ten per cent)'. The condition is that the beneficial owner of the dividends be a resident of the other Contracting State. Art. 10(2).
The holding that unlocks it	None. There is no shareholding threshold and no lower tier.
Where this comes from	Article 10, paragraph 2

Art. 10(3) is the ordinary dividend definition. Art. 10(4) disapplies paras 1 and 2 on a PE or fixed-base connection and routes to Article 7 or Article 14. Art. 10(5) is the ordinary bar on extra-territorial taxation. Separately and importantly, protocol paragraph 4 permits A branch profits tax: where a company resident in one State has a PE in the other, the profits attributable to the PE 'may be subjected to an additional tax or branch profits tax in that other State in accordance with its law, but such tax so charged shall not exceed A rate of 15% (fifteen per cent)'. That matters for Indonesia, whose domestic law imposes a branch profits tax; the treaty does not remove it, it caps it at 15 per cent.

Interest

Rate	10 per cent of the gross amount, conditional on the beneficial owner of the interest being a resident of the other Contracting State. Art. 11(2).
Exemptions	The exemptions are in the article itself, at Art. 11(3), and the trigger is the strict two-limb one: interest is exempt in the source State 'provided that it is derived and beneficially owned by' one of the listed bodies. There is no credit-support, guarantee or endorsement limb of the Sweden, Denmark, Finland or Poland kind. Art. 11(3)(a): the Government, a political sub-division or a local authority of the other Contracting State. Art. 11(3)(b)(i), india — three named institutions: the reserve bank of india, the export-import bank of india and the national housing bank. Art. 11(3)(b)(ii), indonesia — three named institutions: bank indonesia (the Central Bank of Indonesia); pusat investasi pemerintah (the Centre for Government Investment); and lembaga pembiayaan ekspor indonesia (the Indonesia Eximbank). Note the drafting: there is no generic 'Central Bank of the other Contracting State' limb. Both central banks are covered only because each is named — the Reserve Bank of India in (b)(i)(1) and Bank Indonesia in (b)(ii)(1). If either were reconstituted under a different name the limb would need the extension mechanism. Art. 11(3)(c) is the extension mechanism and IT is narrower than IT looks: 'a statutory body or any institution wholly owned by the government of the Contracting States, as may be agreed from time to time between the competent authorities of the Contracting States'. Two conditions — wholly owned by the Government, and agreed between the competent authorities. No such agreement is recorded in the sources used here. Art. 11(5) disapplies paragraphs 1 and 2 only where the debt-claim is effectively connected with a PE or fixed base. Paragraph 3 is not disapplied, so the exemptions survive a PE connection.
Where this comes from	Article 11, paragraph 2 and 3

Art. 11(4) is the ordinary wide interest definition with penalty charges for late payment excluded. Art. 11(6) makes interest arise where the payer is A resident of that State, with the PE deemed-source override. Art. 11(7) is the special-relationship rule. Protocol paragraph 2 is A real limit on the article: the provisions of paragraphs 1 and 2 of Articles 11 and 12 'shall not apply and provisions of Article 7 shall apply if the income is effectively connected with business activities referred to in paragraph 1 of this protocol' — that is, with the anti-avoidance attribution rule for same-or-similar sales and business activities. So interest and royalties can be pulled out of Articles 11 and 12 and into Article 7 not only by an ordinary PE connection but also by the Protocol's anti-avoidance attribution rule.

Royalties

Rate	10 per cent of the gross amount, conditional on the beneficial owner being a resident of the other Contracting State. Art. 12(2). A single flat ceiling for royalties and fees for technical services alike.
Where this comes from	Article 12, paragraph 2

Art. 12(3)(a) is the full wide royalty definition including the broadcasting limb and the equipment limb, so equipment hire is a royalty at 10 per cent. Art. 12(5)(b) contains A second source rule of the finnish kind, and IT is the provision most likely to be missed: 'Where under sub-paragraph (a) royalties or fees for technical services do not arise in one of the contracting states, and the royalties relate to the use of, or the right to use, the right or property, or the fees for technical services relate to services performed, in one of the contracting states, the royalties or fees for technical services shall be deemed to arise in that contracting state.' Note the trigger is expressed as a fallback — it operates only where the ordinary payer-residence and PE-borne rules in (a) produce no source in either State. It is therefore narrower than the Finnish equivalent, which sits alongside the payer rule rather than behind it. Art. 12(4) disapplies paras 1 and 2 on a PE or fixed-base connection and routes to Article 7 or Article 14; Protocol paragraph 2 adds a second route out of Article 12 and into Article 7. Art. 12(6) is the special-relationship rule and, as printed, refers only to 'the last-mentioned amount of royalties' although the paragraph governs FTS as well.

Fees for technical services

Rate	10 per cent of the gross amount — the same flat ceiling as royalties, Art. 12(2).
Make-available requirement	No
Where this comes from	Article 12, paragraph 2 and 3(b)

Art. 12(3)(b): 'fees for technical services' means payments of any kind, other than those mentioned in articles 14 and 15 of this agreement, as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel. This is the Norway, Finland and post-2014 Poland form. There is no make-available requirement — the words 'make available' appear nowhere in the Agreement or the Protocol — and no ancillary-and-subsidiary limb. Managerial services are caught. The carve-out is for payments within Article 14 (independent personal services) and Article 15 (dependent personal services). Because the service PE threshold is only 91 days, the FTS article and the service PE overlap heavily in practice: services performed in India for more than 91 days in any twelve-month period create a PE and are taxed on a net basis under Article 7, while shorter engagements are taxed on a gross basis at 10 per cent under Article 12.

Capital gains on shares

Treatment	Two source-taxing limbs and a residence-only residue, with the immovable-property limb in the modern value-based form. (a) Art. 13(4): 'Gains derived by a resident of a Contracting State from the alienation of shares deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.' This is the post-2003 OECD formula — a percentage-of-value test rather than the older 'consists principally of immovable property' — but without the 365-day look-back, which only the MLI supplies and which does not reach this treaty. The test is therefore applied at the moment of alienation. Note also that it speaks of 'shares' generally, not of 'shares of the capital stock of a company', and does not extend to comparable interests in partnerships or trusts. (b) Art. 13(5): 'Gains from the alienation of shares other than those mentioned in paragraph 4 in a company which is a resident of a Contracting State may be taxed in that State' — with no threshold. Every share gain in a resident company is source-taxable. (c) Art. 13(6): gains on any other property are taxable only in the State of residence.
Grandfathering	None. No grandfathering date, no acquisition cut-off and no transitional rate. Note that the Agreement entered into force on 5 February 2016 and took effect in India from 1 April 2017 — after India's 1 April 2017 watershed for Mauritius and Singapore — so there was no legacy exemption to grandfather in the first place.
Conditions	None on the paragraph 5 limb beyond the company being a resident of the taxing State. The overlay is article 24 (Limitation of Benefits), which applies to the whole Agreement including Article 13.
Where this comes from	Article 13, paragraph 4, 5 and 6

Permanent establishment

Construction or installation PE	183 days — Art. 5(3)(a): 'a building site or a construction or assembly or installation project or supervisory activities in connection therewith, but only if such site, project or activities last for A period of more than 183 days'. Expressed in days rather than months, with no aggregation clause for connected sites, no rolling twelve-month window and — because no MLI applies — no splitting-up-of-contracts rule. Art. 5(3)(b) adds a separate 183-day limb for 'a drilling rig or working ship used for exploration or exploitation of natural resources, but only if so used for a period more than 183 days' — a rig-and-ship rule rather than the services-and-plant-hire rule found in the Spain, Sweden, Austria and Belgium treaties.
Service PE	Yes — 91 days, the shortest service PE threshold in this batch by A wide margin. Art. 5(3)(c): 'the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or A connected project) within a Contracting State for a period or periods aggregating more than 91 days within any twelve month period.' Compare Norway (more than six months), Finland (183 days) and Poland (six months). Ninety-one days is roughly three months, so a single quarter of on-site work for one project creates a PE. The three qualifiers must travel with the number: personnel engaged for that purpose; the same or a connected project; and a rolling twelve-month period.
Agency PE	Yes — Art. 5(5), three limbs, pre-MLI: (a) has, and habitually exercises, an authority to conclude contracts in the name of the enterprise, unless the activities are limited to those in paragraph 4; (b) the stock-and-delivery limb; and (c) 'habitually secures orders in the first-mentioned State, wholly or almost wholly for the enterprise itself' — narrow, like Finland's, with no common-control extension. Art. 5(7), the independent-agent saving, likewise carries the 'devoted wholly or almost wholly on behalf of that enterprise' disqualifier with no common-control extension and no arm's-length rebuttal. Art. 5(8) is the no-PE-by-control rule.
Where this comes from	Article 5

There is an insurance PE at Art. 5(6): an insurance enterprise, except in regard to re-insurance, is deemed to have a PE in the other State if it collects premiums there or insures risks situated there through a person other than an independent agent. The Art. 5(4) exemption list is the modern six-item OECD form with a preparatory-or-auxiliary catch-all at (e) and a combination clause at (f); because no MLI applies, sub-paragraphs (a) to (d) remain automatic and there is no anti-fragmentation rule of any kind. Art. 5(2) lists (f) a warehouse in relation to a person providing storage facilities for others, (g) 'premises as sales outlet', (h) a farm or plantation, and (i) a mine, oil or gas well, quarry or other place of extraction. Protocol paragraph 1 is A conditional force-of-attraction rule and is unusual: profits from the sale of goods of the same or similar kind as those sold through the PE, or from other business activities of the same or similar kind, may be attributed to the PE only if IT is proved that (i) the transaction was resorted to in order to avoid taxation in the State where the PE is situated, and (ii) the PE was in any way involved in the transaction. Both limbs must be proved, and the burden is on the revenue — a much narrower force-of-attraction rule than the unconditional versions in some Indian treaties.

Anti-abuse: limitation of benefits, and the MLI

LOB	Article 24, limitation of benefits — in the treaty as signed in 2012, in three paragraphs, and it is broadly drafted. Para 1: 'The provisions of this Agreement shall in no case prevent A contracting state from the application of the provisions of its domestic law and measures concerning tax avoidance or evasion, whether or not described as such.' The closing words 'whether or not described as such' are wider than the equivalent in any other treaty in this batch — they reach domestic provisions that are not labelled anti-avoidance measures. Para 2: A main-purpose test — 'A resident of a Contracting State shall not be entitled to the benefits of this Agreement if its affairs were arranged in such A manner as if IT was the main purpose or one of the main purposes to take the benefits of this agreement.' Note the test is directed at the arrangement of the resident's affairs, not at an arrangement or transaction producing a particular item of income, so it is closer to the Spanish Art. 28B(4) formula than to the MLI PPT. Para 3: 'the case of legal entities not having bonafide business activities shall be covered by the provisions of this article' — a substance requirement stated in the barest terms, with no definition of 'bonafide business activities' and no safe harbour.
PPT	No MLI principal purposes test — there is no Synthesised Text for Indonesia in the sources used here. What exists is the bilateral main-purpose test in Art. 24(2), which was negotiated into the treaty in 2012 and remains fully in force and unmodified. Unlike Norway, Poland and Finland, where the MLI PPT replaced the bilateral article, the Indonesian Article 24 stands intact — all three paragraphs of it.
Subject to tax	None.
Where this comes from	Article 24

No Synthesised Text for Indonesia has been identified from the sources used here. So none of the MLI-derived changes appear: no anti-treaty-shopping preamble, no preparatory-or-auxiliary overlay, no anti-fragmentation rule, no commissionnaire rule, no 365-day look-back on immovable-property share gains, and no MLI principal purposes test. That said, this treaty needs the MLI less than most: signed in 2012, it already contains a bilateral limitation of benefits article with a main-purpose test (Art. 24), a modern foreseeably-relevant exchange-of-information article (Art. 27), a full eight-paragraph assistance-in-collection article (Art. 28), a service PE, an insurance PE and a value-based immovable-property share-gains rule.

The protocols, in order

A treaty read without its protocols is a wrong answer.

None that can stand. The whole treaty and its Protocol were scanned end to end for amendment markers — bracketed footnote numerals, 'Substituted by', 'Inserted by', 'Omitted by' — and not one was found. Every provision of the India-Indonesia Agreement stands exactly as notified in 2016.
The reference in the Introduction to 'notification no. GSR 77(E), dated 4-2-1988' as amending S.O. 1144(E) dated 16-3-2016 is chronologically impossible and is treated as an error in the citation line. See notification.
There is one protocol only, signed with the Agreement on 27 July 2012 and expressed to be an integral part of it. It is not an amending instrument.
No MLI modification of this treaty is established here; see synthesised_text.

The words themselves

Quoted from the treaty as notified.

the furnishing of services, including consultancy services, by an enterprise through employees or other personnel engaged by the enterprise for such purpose, but only if activities of that nature continue (for the same or a connected project) within a Contracting State for a period or periods aggregating more than 91 days within any twelve month period.

Article 5, paragraph 3(c) of the treaty as notified.

Gains derived by a resident of a Contracting State from the alienation of shares deriving more than 50 per cent of their value directly or indirectly from immovable property situated in the other Contracting State may be taxed in that other State.

Article 13, paragraph 4 of the treaty as notified.

The provisions of this Agreement shall in no case prevent a Contracting State from the application of the provisions of its domestic law and measures concerning tax avoidance or evasion, whether or not described as such.

Article 24, paragraph 1 of the treaty as notified.

The case of legal entities not having bonafide business activities shall be covered by the provisions of this Article.

Article 24, paragraph 3 of the treaty as notified.

It is understood that in the event of conflict in application between the provisions of this Agreement and the provisions of production sharing contracts relating to the exploitation and production of oil and natural gas in a Contracting State entered into by the Government or any person authorized by it, the latter shall prevail.

Article Protocol, paragraph 5 of the treaty as notified.

the profits attributable to the permanent establishment may be subjected to an additional tax or branch profits tax in that other State in accordance with its law, but such tax so charged shall not exceed a rate of 15%(fifteen per cent).

Article Protocol, paragraph 4 of the treaty as notified.

What to watch

The citation line for indonesia is wrong and must not be reproduced. It says the 2016 notification was 'As Amended by notification no. GSR 77(E), dated 4-2-1988'. A 1988 notification cannot amend a 2016 one; G.S.R. 77(E) belongs to the superseded 1987 Agreement. No article in the treaty carries any amendment marker.
The service PE threshold is 91 days — the shortest in this batch and one of the shortest in the Indian network. Roughly one quarter of on-site work for the same or a connected project, in any twelve-month period, and the enterprise has a PE. This is the single most important operational point on the treaty.
Protocol paragraph 5 subordinates the whole treaty to oil and gas production sharing contracts. 'Notwithstanding anything contained in this Agreement' is not used, but the effect is stated plainly: where the Agreement conflicts with a production sharing contract relating to the exploitation and production of oil and natural gas entered into by the Government or an authorised person, the production sharing contract prevails. No other treaty in this batch subordinates itself to a commercial contract in this way, and for the energy sector it displaces the treaty analysis entirely.
The branch profits tax survives, capped at 15 per cent. Protocol paragraph 4 expressly preserves an additional tax or branch profits tax on PE profits, capped at 15 per cent. Protocol paragraph 3 separately confirms that charging a PE at a higher rate than a domestic company is neither discriminatory under Article 25 nor in conflict with Art. 7(3). The two must be read together with the Article 10 rate: a 10 per cent dividend ceiling sits alongside a permitted 15 per cent branch profits tax.
The force-of-attraction rule is conditional and two-limbed. Protocol paragraph 1 attributes same-or-similar sales and business activities to the PE only if it is proved both that the transaction was resorted to in order to avoid taxation in the PE State and that the PE was in any way involved. Both limbs, and the word 'proved', are load-bearing.
Protocol paragraph 2 is A second exit from articles 11 and 12. Interest and royalties or FTS effectively connected with the Protocol paragraph 1 business activities fall out of the rate articles and into Article 7 — quite apart from the ordinary PE connection in Art. 11(5) and Art. 12(4).
Art. 12(5)(b) is A fallback source rule, not A parallel one. It deems royalties or FTS to arise in a Contracting State where the right or property is used or the services are performed, but only where sub-paragraph (a) produces no source in either State. Compare Finland's Art. 12(5), which applies the use-and-performance rule alongside the payer rule rather than behind it.
Article 24 is A real and wide anti-abuse article and IT is not MLI-derived. Its paragraph 1 preserves domestic anti-avoidance law 'whether or not described as such'; paragraph 2 is a main-purpose test aimed at how the resident's affairs are arranged; and paragraph 3 sweeps in legal entities without bona fide business activities. Because there is no synthesised text, none of it has been replaced or superseded.
All share gains are source-taxable, and the immovable-property limb uses the modern more-than-50-per-cent-of-value test rather than the older 'consists principally of' formula — but without the 365-day look-back, so the test is applied at alienation and can in principle be managed by timing.
The interest exemption names six institutions and has no generic central-bank limb. Bank Indonesia and the Reserve Bank of India are covered only because each is named. The extension mechanism in Art. 11(3)(c) requires both wholly-Government ownership and a competent-authority agreement, and no such agreement is recorded.
Art. 4(1) includes place of incorporation as a residence criterion alongside domicile, residence and place of management, and expressly includes the State and its political subdivisions and local authorities. Art. 4(3) uses place of effective management with a competent-authority fallback where it cannot be determined — and, unlike the MLI-modified treaties, it does not strip a dual-resident company of all relief where the authorities fail to agree.
Article 22(3) gives the source state A taxing right over unclassified income arising there, overriding the residence-only rule in paragraph 1.
There is no tax sparing and no underlying credit. Article 23 is a plain two-paragraph ordinary-credit-plus-exemption-with-progression article, symmetrical for both States, with no deemed-paid rule of any kind. That is a marked contrast with the older treaties in this batch, most of which carry a one-way tax-sparing obligation on the partner State.
Article 28 is the full modern assistance-in-collection article — eight paragraphs, conservancy measures, disapplication of domestic time limits and priorities, the exclusive-forum rule and the four limits — negotiated into the treaty in 2012 rather than added later by protocol as in Sweden, Denmark, Austria, Belgium and New Zealand.

What this page does not tell you. What Notification No. G.S.R. 77(E) dated 4-2-1988 actually is, and why the citation line attaches it to the 2016 notification. It almost certainly relates to the 1987 Agreement terminated by Art. 30(4), but that is not established from the material read. Whether the competent authorities have agreed on any statutory body or wholly Government-owned institution under Art. 11(3)(c). No such agreement appears in the sources used here. The precise Indonesian domestic branch profits tax rate and whether the Protocol paragraph 4 cap of 15 per cent bites. The treaty caps but does not impose. Which production sharing contracts fall within Protocol paragraph 5, and how the priority it gives them is administered. The provision is stated in the treaty but its operation is entirely outside it. Why no Synthesised Text for India-Indonesia has been identified from the sources used here. Indonesia is an MLI signatory; nothing in the primary material read establishes whether this is a gap in the material or the correct legal position, and the MLI position statements were not read. Article 12(6) as printed refers only to 'the last-mentioned amount of royalties' although the paragraph governs fees for technical services as well; whether the omission is in the Gazette text or in the copy read here was not established. The same pattern appears at Art. 11(7), which refers to 'the last-mentioned amount of interest'.

The India–Indonesia tax treaty