[Senate Treaty Document 104-32]
[From the U.S. Government Publishing Office]



104th Congress                                              Treaty Doc.
                                SENATE

 2d Session                                                      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.


                         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.


                          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. Either 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.



                                
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