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

Taxation Analysis
Beneficial Ownership in Taxation:
Its Dynamics and Challenges
Yustinus Prastowo
Executive Director Center for Indonesia Taxation Analysis (CITA)

Taxation Analysis
Outline
•Background: Treaty Shopping
•Definition of Beneficial Owner
•Discussion of Court Cases
•Beneficial Owner in Indonesia
•Conclusion

Taxation Analysis
Background: Treaty Shopping1

Taxation Analysis
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“

Taxation Analysis
Example 1: Treaty Shopping

Taxation Analysis
Conduit Company Scheme Stepping Stone Conduit
Jain, Saurabh. (2013). Effectiveness of the Beneficial Ownership Test in Conduit Company
Cases. The Netherlands: IBFD

Taxation Analysis
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.

Taxation Analysis
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

Taxation Analysis
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

Taxation Analysis
Definition of Beneficial Owner2

Taxation Analysis
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

Taxation Analysis
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”

Taxation Analysis
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

Taxation Analysis
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.

Taxation Analysis
Discussion of Court Cases3

Taxation Analysis
17
Aiken Industry Case
*The case was decided before the term “beneficial owner” was introduced to the OECD Model.

Taxation Analysis
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.

Taxation Analysis
 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

Taxation Analysis
 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

Taxation Analysis
 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

Taxation Analysis
 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

Taxation Analysis
23
Indofood Case
*Recent court cases and developments.

Taxation Analysis
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

Taxation Analysis
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

Taxation Analysis
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

Taxation Analysis
27
Facts
Indofood Sukses
Makmur (Parent)
Indonesia
NewCo
The
Netherlands
Note-holders
(Trustee:
JP Morgan)
Indofood
International
Finance Ltd.
Mauritius

Taxation Analysis
 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

Taxation Analysis
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..

Taxation Analysis
 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

Taxation Analysis
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???

Taxation Analysis
32
Prevost Case

Taxation Analysis
Situation in Canada after Indofood Case
33
Canada
Treaty Partners
Dividend interest royalties
resident
WHT with reduced rate
Beneficial
owner???

Taxation Analysis
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%

Taxation Analysis
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.

Taxation Analysis
 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)

Taxation Analysis
 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

Taxation Analysis
38
Velcro Cases

Taxation Analysis
39
Facts

Taxation Analysis
 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

Taxation Analysis
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

Taxation Analysis
 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

Taxation Analysis
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

Taxation Analysis
 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

Taxation Analysis
 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

Taxation Analysis
 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

Taxation Analysis
 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

Taxation Analysis
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

Taxation Analysis
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

Taxation Analysis
Beneficial Owner in Indonesia4

Taxation Analysis
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

Taxation Analysis
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).

Taxation Analysis
53Indonesia: 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.

Taxation Analysis
54

Taxation Analysis
Alternative/Challenge5

Taxation Analysis
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

Taxation Analysis
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

Taxation Analysis
Conclusion6

Taxation Analysis
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

Taxation Analysis
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

Taxation Analysis
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

Taxation Analysis
62
T E R I M A K A S I H
Taxation Analysis
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Jalan Gatot Subroto, Pancoran Jakarta Selatan

Beneficial Ownership in Taxation: Its Dynamics and Challenges

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