Revenue Regulations Implementing the RP-Indonesia Tax Treaty

January 17, 1983 REVENUE REGULATIONS NO. 03-83 SUBJECT : Revenue Regulations Implementing the RP-Indonesia Tax Treaty TO : All Internal Revenue Officers and Others Concerned Pursuant to the provisions of Section 326, in relation to Section 4 and 29 (c) (6), of the National Internal Revenue Code of 1977, as amended, these Regulations are hereby promulgated to implement the provisions of the Agreement between the Philippines and Indonesia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income. CHAPTER I SCOPE, GENERAL DEFINITIONS AND AVAILMENT OF TREATY BENEFITS SECTION 1. Effectivity . The Agreement took effect on May 19, 1982 and in respect to taxes withheld at source on amounts paid to non-resident on or after January 1, 1982 and in respect to other taxes for taxation year beginning on or after January 1, 1983. (Art. 30, par. 2) SECTION 2. Personal Scope . The Agreement applies to residents of the Philippines or Indonesia or both of them. (Art. 1) SECTION 3. Taxes Covered . (1) The taxes subject of the Agreement are the income taxes imposed by the Philippines and Indonesia. (Art. 2, 1) (2) All taxes imposed on total income or on elements of income, including taxes on gains from the alienation of movable or immovable property, and taxes on the total amounts of wages or salaries paid by enterprises are regarded as income taxes. (Art. 2, 2) (3) More specifically the taxes which are the subject of the Agreement are: (a) in the Philippines: the income taxes imposed by the Government of the Republic of the Philippines, (hereinafter referred to as "Philippine tax"); (b) in Indonesia: (i) the Income Tax (Pajak Pendapatan); (ii) the Company tax (Pajak Perseroan); (iii) the Tax on Interest, Dividend and Royalty (Pajak Atas Bunga, Dividen dan Royalty) (hereinafter referred to as "Indonesia Tax"). (Art. 2, 3) cd i (4) The Agreement also applies to any identical or substantially similar taxes which are imposed after June 18, 1981, the date the Agreement was signed, in addition to or in place thereof. (Art. 2, 4) SECTION 4. Availment of treaty benefits . Any person availing of any of the benefits provided by the Agreement shall file the appropriate BIR Form for Income Tax Convention herein below indicated with the International Operation Division, Bureau of Internal Revenue, National Office Bldg., Diliman, Quezon City. If the one availing the benefits resides outside Metro Manila, he may file the appropriate BIR Form with the Regional Office nearest his residence. It shall be the duty of the Regional Director to forward the said form to the International Operation Division for proper action. APPLICATION FORMS FOR INCOME TAX CONVENTION BIR Form No. TC-001 Relief from Tax on Passive Income, Business Income, Compensation Income, etc. BIR Form No. TC-002 Relief from tax on profits from Shipping and Aircraft. All other request for relief where the above forms are inapplicable the party availing thereof, may write to the Commissioner of Internal Revenue, Attn.: The Chief International Taxation Division for a ruling on the relief requested. SECTION 5. General Definitions . (1) For the purposes of these Regulations, unless the context otherwise requires, the following terms mean: casia (a) "Philippines" the Republic of the Philippines and when used in a geographical sense means the national territory comprising the Republic of the Philippines. [Art. 3, 1 (a) (ii)] (b) "Indonesia" the territory of the Republic of Indonesia as defined in its laws, and parts of the continental shelf and adjacent seas, over which the Republic of Indonesia has sovereignty, sovereign rights or other rights in accordance with international law. [Art. 3, 1 (c)] (c) "Person" an individual, an estate, a trust, a company, and any other body of persons, [Art. 3, 1 (c)] (d) "Company" a body corporate or an entity which is treated as a body corporate for tax purposes. [Art. 3, 1 (d)] (e) "Resident of Philippines" or "resident of Indonesia" any person who, under the laws of the Philippines or of Indonesia, is treated as a resident of that State for tax purposes. [Art. 4, 1] (f) "National" an individual possessing the nationality of the Philippines or Indonesia; and a juridical person created or organized under the laws of the Philippines or Indonesia and all organizations without juridical personality treated for tax purposes by that State as juridical persons created or organized under the laws of that State. [Art. 3, 1 (g)] (g) "Enterprise" a business organization carried on by a resident of the Philippines or Indonesia. [Art. 3, 1 (e)] (h) "Associated enterprise" an enterprise of the Philippines or Indonesia which participates directly or indirectly in the management, control of capital of an enterprise of the other State; or the same persons participate directly or indirectly in the management, control or capital of an enterprise of the Philippines and an enterprise of Indonesia. [Art. 9, 1] (i) "Permanent establishment" a fixed place of business through which the business of the enterprise is wholly or partly carried on. [Art. 5, 1] cdt (j) "Dividends" income from salaries, mining shares, founders' shares or other rights, not being debt-claims, participating in profits, as well as income from other corporate rights which is subjected to the same taxation treatment as income from shares by the laws of the State of which the company making the distribution is a resident. [Art. 10, 4] (k) "Interest" income from debt-claims of every kind, whether or not secured by mortgage, and whether or not carrying a right to participate in the debtor's profits, and in particular, income from government securities and income from bonds or debentures, including premiums and prizes attaching to such securities, bonds or debentures, as well as income assimilated to income from money lent by the taxation law of the State in which the income arises, including interest on deferred payment sales. Penalty charges for late payment shall not be regarded as interest. [Art. 11, 5] (l) "Royalties" payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience, and includes payments of any kind in respect of motion picture films and works on films or video tapes for use in connection with television or tapes for the use of radio broadcasting. [Art. 12, 4] (m) "Immovable property" the same as defined by the domestic laws of the Philippines or Indonesia in which the property in question is situated. The term shall in any case include property accessory to immovable property, livestock and equipment used in agriculture and forestry, right to which provisions of general law respecting landed property apply, usufruct of immovable property and rights to variable or fixed payments as consideration for the working of, or the right to work, mineral deposits, sources and other natural resources; ships, boats and aircraft shall not be regarded as immovable property. [Art. 6, 2] (n) "Professional services" includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists, and accountants. [Art. 14, 2] (o) "Pension" includes periodic payments made in consideration for past services rendered. [Rev. Reg. No. 7-82, Sec. 5, 1(m)] (p) "International traffic" any transport by a ship or aircraft operated by an enterprise of the Philippines or Indonesia, except where the ship or aircraft is operated solely between places in the Philippines or Indonesia. [Art. 3, 1(f)] (q) "Competent authority" in the case of the Philippines, the Minister of Finance or his duly authorized representative; in the case of Indonesia the Minister of Finance or his duly authorized representative. [Art. 3, 1(h)] (2) As regards the application of the Agreement by the Philippines or Indonesia any term not otherwise defined shall, unless the context otherwise requires, have the meaning which it has under the laws of the State relating to the taxes which are the subject of the Agreement. [Art. 3, 3] SECTION 6. Resident . (1) Where an individual is a resident of both the Philippines and Indonesia, then his status shall be determined as follows: (a) He shall be deemed to be a resident of the State in which he has a permanent home available to him, if he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which his personal and economic relations are closer (centre of vital interests). [Art. 4, 2(a)] (b) If the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode. [Art. 4, 2(b)] (c) If he has an habitual abode in both States or neither of them, the competent authorities of the Philippines and Indonesia shall settle the question by mutual agreement. [Art. 4, 2(c)] (2) Where a person other than an individual is a resident of both the Philippines and Indonesia, the competent authorities of the Philippines and Indonesia shall settle the question by mutual agreement. [Art. 4, 3] cd CHAPTER II TAXATION OF BUSINESS PROFITS SECTION 7. General Rule . Profits of an enterprise of Indonesia are taxes in the Philippines only if that enterprise carries on or has carried on business in the Philippines through a permanent establishment but only so much of them as is attributable to: (a) that permanent establishing; or (b) sales within the Philippines of goods or merchandise of the same or similar kind as those sold through that permanent establishment; or (c) other business activities carried on in the Philippines of the same or similar kind as those effected through that permanent establishment. [Art. 7, 1] SECTION 8. Attribution Rule . (1) Where an enterprise of Indonesia carries on business in the Philippines through a permanent establishment, there shall be attributed to that permanent establishment the profits which might be expected to make if it were a distinct and a separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently from its head office in Indonesia. [Art. 7, 2] (2) There shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the Philippines or elsewhere. [Art. 7, 3] (3) The profits to be attributed to a permanent establishment shall be made on the basis of an apportionment of the total profits of the enterprise to is various parts, the method of apportionment shall, however, be such that the result shall be in accordance with the principles embodied in the Agreement. [Art. 7, 4] (4) Notwithstanding the provisions of paragraph 2 above, no deduction shall be allowed in respect of amounts paid or charged (other than reimbursement for actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of: (a) royalties, fees or other similar payments in return for the use of patents or other rights; or (b) commission for specific services performed or for management; or cd (c) interest on money lent to the permanent establishment, except in the case of banking institution. [Art. 7, 5] (5) For the purposes of the preceding paragraphs, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary. [Art. 7, 6] SECTION 9. Profits dealt with separately in other articles of the agreement . Where profits include items of income which are dealt with separately in other Articles of the Agreement or in other Sections of these Regulations, then the provisions of those Articles or Sections shall govern on such profits. [Art. 7, 7] SECTION 10 . Permanent establishment . (1) The term "permanent establishment" includes especially: (a) a place of management; (b) a branch; (c) an office; (d) a factory; (e) a workshop; (f) a farm or plantation; (g) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources; (h) a place of exploration of natural resources; (i) a building site or construction project or supervisory activities in connection therewith, where such site, project or activity continues for a period of more than six months; (j) an assembly or installation project which exists for more than three months; (k) premises used as sales outlets; (l) a warehouse, in relation to a person providing storage facilities for others; acd (m) the furnishing of services, including consultancy services by an enterprise through an employee or other personnel where activities of that nature continue (for the same or connected project) for a period or periods aggregating more than 183 days within any twelve-month period. [Art. 5, 2] (2) The term "permanent establishment" does not include: (a) the use of facilities solely for the purpose of storage or merchandise belonging to the enterprise; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage or display; (c) maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise; (e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character; (f) the maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paragraphs (a) to (e), provided that the overall activity of the fixed placed or business resulting from this combination is a preparatory or auxiliary character. [Art. 5, 3] cd i (3) Where a person, other than an agent of an independent status, is acting in the Philippines, on behalf of an enterprise of Indonesia, that enterprise shall be deemed to have a permanent establishment in the Philippines if (a) he has, and habitually exercises in the Philippines, an authority to conclude contracts on behalf of the enterprise, unless his activities are limited to the purchase of goods or merchandise for that enterprise; or (b) he has no such authority, but habitually maintains in the Philippines a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise; or (c) in so acting, he manufactures or processes in the Philippines for the enterprise goods or merchandise belonging to the enterprise. [Art. 5, 4] (4) An insurance enterprise of Indonesia except with respect to reinsurance, is deemed to have a permanent establishment in the Philippines, if it collects premiums in the Philippines or insures risks situated therein through an employee or through a representative who is not an agent of an independent status to whom paragraph 5 below applies. [Art. 5, 5] (5) An enterprise of Indonesia is not deemed to have a permanent establishment in the Philippines merely because it carries on business in the Philippines through a broker, general commission agent, or any other agent of an independent status, provided that such person is acting in the ordinary course of his business. However, when the activities of such an agent are devoted wholly or almost wholly on behalf of that enterprise, he shall not be considered an agent of independent status within the meaning of this paragraph if it is shown that the transactions between the agent and the enterprise were not made under arm's-length conditions. In such case, the provisions of paragraph 3 shall apply. [Art. 5, 6] (6) The fact that a company of Indonesia controls, or is controlled by, a Philippines company, or which carries on business in the Philippines (whether through a permanent establishment or otherwise), shall not of itself constitute in either company a permanent establishment of the other [Art. 5, 7] SECTION 11 . Associated enterprises . (1) Where conditions are made or imposed between or among associated enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profit which would, but for those conditions, have accrued to one of the enterprise, but, by reason of those conditions have not so accrued, may be included in the profits of that enterprise and taxed accordingly. [Art. 9, 1] (2) The profits of an enterprise, in the circumstances referred to in paragraph 1 above, shall not be changed after the expiry of the time limits provided by the National Internal Revenue Code. [Art. 9, 2] CHAPTER III TAXATION OF PASSIVE INCOME SECTION 12 . Dividends . (1) Dividends paid by a company of Indonesia to a resident of the Philippines are taxable as an ordinary foreign source income under Title II of the National Internal Revenue Code. [Art. 10, 1] (2) Dividends paid by a Philippine company to a resident of Indonesia who is a beneficial owner thereof are taxed as follows: (a) 15% of the gross amount of the dividends if the recipient is a company of Indonesia which holds directly at least 25% of the capital of the paying company . cdt (b) 20% of the gross amount of the dividends in all other cases. This paragraph shall not affect the taxation of the company in respect of the profits out of which the dividends are paid. [Art. 10, 2] (3) Where a company of Indonesia derives profits or income from the Philippines, no tax shall be imposed on the dividends paid by that company, except insofar as such dividends are paid to a resident of the Philippines, or insofar as the holding in respect of which the dividends are paid is effectively connected with a permanent establishment or a fixed base situated in the Philippines, nor subject the company's undistributed profits, to a tax on the company's undistributed profits, even if the dividends paid or the undistributed profits consist wholly or partly of profits or income arising in the Philippines. [Art. 10, 6] SECTION 13 . Branch profit remittance tax . Nothing in these Regulations shall be construed as preventing the Philippines from imposing the branch profit remittance tax under Section 24 (b) (2) of the Tax Code. [Art. 10, 7] SECTION 14 . Interest . (1) Interest arising in Indonesia and paid to a resident of the Philippines is taxable as an ordinary foreign source income under Title II, National Internal Revenue Code. [Art. 11, 1] (2) Interest arising in the Philippines and paid to a resident of Indonesia who is the beneficial owner of such interest is taxed as follows: (a) exempted if the interest is paid in respect of: (i) a bond, debentures or other similar obligation of the Government of the Philippines or a political subdivision or local authority thereof; or (ii) a loan made, guaranteed, or insured, or a credit extended, guaranteed or insured by the Central Bank of the Philippines, or the "Bank Indonesia" (the Central Bank of Indonesia), or any other lending institution, as may be specified and agreed in letters exchanged between the competent authorities of the Philippines and Indonesia; [Art. 11, 3(a)] (b) 10% of the gross amount of interest in respect of public issues of bonds, debentures or similar obligations paid by a Philippine company; [Art. 11, 3(b)] (c) 15% of the gross amount of interest in all other cases. [Art. 11, 2] SECTION 15 . Source of interest . Interest shall be deemed to arise in the Philippines or Indonesia when the payer is that State itself, a political subdivision, a local authority or a resident of that State. Where, however, the person paying the interest, whether he is a resident of the Philippines or Indonesia or in neither of them, has in the Philippines or Indonesia a permanent establishment or a fixed base in connection with which the indebtedness on which the interest is paid was incurred, and such interest is borne by such permanent establishment or fixed base, then such interest shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. [Art. 11, 7] SECTION 16 . Where special relationship between payer and payee exists . Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the interest, having regard to the debt-claim for which it is paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of Section 14 shall apply only to the last-mentioned amount. In such a case, the excess part of the payments shall remain taxable according to the laws of that State imposing the tax, due regard being had to the other provisions of this Agreement. [Art. 11, 8] cd i SECTION 17 . Royalties . (1) Royalties arising in Indonesia and paid to a resident of the Philippines are taxable as an ordinary foreign source income under Title II, National Internal Revenue Code. [Art. 12, 1] (2) Royalties arising in the Philippines and paid to a resident of Indonesia are taxed as follows: (a) 15% of the gross amount of royalties paid by an enterprise registered with the Philippine Board of Investments, and engaged in preferred areas of activities as determined by the said Board; [Art. 12, 2(a) (i)] (b) 25% of the gross amount of the royalties in all other cases. [Art. 12, 2(a) (ii)] SECTION 18 . Non-applicability of sections 12, 14 and 17 . The provisions of Section 12 ( Dividends ), 14 (Interest), and 17 (Royalties) of these Regulations shall not apply if the beneficial owner of the dividends, interest and royalties, being a resident of Indonesia, carried on business in the Philippines through a permanent establishment, or performs professional services from a fixed base in the Philippines, and the holding by virtue of which the dividends, or the debt-claim in which the interest, or the right or property in respect of which the royalties, are respectively paid are effectively connected with such cases, the provisions of Chapter II of IV of these Regulations, as the case may be, shall apply. [Art. 10, 5; 11, 6 & 12, 5] For the purposes of the preceding paragraph an income is considered effectively connected with the conduct of a business if the asset generating the income is used in or held for use in the conduct of the business, or if the activities of the business were material factors in the realization of the income. [Rev. Reg. No. 7-82, Sec. 17(2)] CHAPTER IV TAXATION OF SPECIFIC INCOME ITEMS SECTION 19 . Income from immovable property . Income derived by a resident of Indonesia from immovable property situated in the Philippines including income from agriculture or forestry is taxable in accordance with the National Internal Revenue. [Art. 6, 1] cdt The provision of the above paragraph is also applicable to: (a) income derived from the direct use, letting, or use in any other form of immovable property; (b) income from immovable property of an enterprise; and (c) income from immovable property used for the performance of independent professional services. [Art. 6, 3 & 4] SECTION 20 . Shipping and air transport . (1) Profits on an enterprise of Indonesia derived in the Philippines from the operation of ships or aircraft in international traffic are taxed at one and one half (11/2) percent of the gross Philippine billings or the lowest rate of tax imposed by the Philippines on such profit received by an enterprise of another country. [Art. 8, 1] (2) The above provision shall also apply to profits derived from the participation in a pool, a joint business or an international operating agency. [Art. 8, 2] SECTION 21 . Gains from alienation of property . (1) Gains derived by a resident of Indonesia from the alienation of immovable property situated in the Philippines are taxed in accordance with the provisions of the National Internal Revenue Code. [Art. 13, 1] (2) Gains from alienation of movable property forming part of the business property of permanent establishment which an enterprise of Indonesia has in the Philippines or movable property pertaining to a fixed base available to a resident of Indonesia in the Philippines for the purpose of performing independent professional services, including such gains from the alienation of such permanent establishment (alone or with the whole enterprise) or of such a fixed base are taxed in accordance with the provisions of the National Internal Revenue Code. [Art. 13, 2] (3) Gains derived by an enterprise of Indonesia from alienation of ships or aircraft operated in international traffic or movable property pertaining to the operation of such ships or aircraft, are exempted in the Philippines. [Art. 13, 3] (4) Gains derived by a resident of Indonesia from the alienation of shares of a company, or from the alienation of interest in partnership or trust, the property of which consists principally of immovable property situated in the Philippines are taxable in the Philippines in accordance with the National Internal Revenue Code. [Art. 13, 4] (5) Gains derived by a resident of Indonesia from the alienation of any property, other than those mentioned in the preceding paragraphs, are exempted in the Philippines. [Art. 3, 5] acd SECTION 22 . Independent Personal Services . Income derived by a resident of Indonesia in respect of professional services or other activities of an independent character performed in the Philippines is taxable in the Philippines if - (a) he has a fixed base regularly available to him in the Philippines for the purpose of performing his activities but only so much of the income as is attributable to that fixed base; or (b) his stay in the Philippines is for a period or periods aggregating 90 days or more in the calendar year. [Art. 14, 1] SECTION 23 . Dependent Personal Services . Subject to the provisions of Sections 24 ( Directors' Fees ), 26 ( Pension ), 27 ( Government Service ), 28 ( Professors and Teachers ) and 29 ( Students and Trainees ), salaries, wages and similar remuneration derived by a resident of Indonesia with respect of an employment exercised in the Philippines are exempted in the Philippines if - (a) the recipient is present in the Philippines for a period or periods not exceeding in the aggregate 183 days in the calendar year concerned, and (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the Philippines, and (c) the remuneration is not borne by a permanent establishment of fixed based which the based which the employer has in the Philippines. [Art. 15] Notwithstanding the provisions of the above paragraph, remuneration derived in respect of an employment as a member of a regular crew or complement of a ship or aircraft operated in international traffic by an enterprise of Indonesia is exempted in the Philippines. [Art. 15, 3] SECTION 24 . Directors' fees . (1) Directors fees and similar payments derived by a resident of Indonesia in his capacity as a member of the board of directors of a Philippine company are taxed in accordance with the provisions of the National Internal Revenue Code [Art. 16, 1] (2) The remuneration which a person to whom paragraph 1 applies derives from the company in respect of the discharge of day-to-day functions of a managerial or technical nature is taxable in the Philippines in accordance with the provisions of Section 23 of these Regulations [Art. 16, 2] cd i SECTION 25 . Artistes and athletes . (1) Notwithstanding the provisions of Section 22 (Independent Personal Services) and 23 (Dependent Personal Services) of these Regulations, income derived by residents of Indonesia as entertainers such as theater, motion picture, radio or television artistes, or musicians, or as athletes, from their personal activities as such in the Philippines are taxable in the Philippines. [Art. 17, 1] (2) Where the income in respect of personal activities performed in the Philippines as such by an entertainer or athlete accrues not to that entertainer or athlete himself but to another person, that income, notwithstanding the provisions of Chapter II and Sections 22 and 23 of the Regulations, is taxable in the Philippines.[Art. 17, 2] (3) The provisions of paragraphs 1 & 2 above, shall not apply to income derived from derived from activities performed in the Philippines by entertainers and athletes if the visit to the Philippines is pursuant to a special programme for cultural exchange agreed upon by the Philippines and Indonesia or is substantially supported by funds of the Government of Indonesia, including any of its political subdivision, local authority or statutory body thereof, nor to income derived by non-profit making organizations in respect of such activities provided no part of its income is payable to, or is otherwise available for, the personal benefit of its proprietors, members or shareholders thereof and the organization is certified as qualifying under this provision by the competent authority of Indonesia. [Art. 17, 3] (4) Notwithstanding the provisions of Chapter II of these Regulations, where the activities mentioned in paragraph 1 above are provided in the Philippines by an enterprise of Indonesia, the profits derived from providing these activities of such enterprise are taxable in the Philippines, unless the visit to the Philippines is pursuant to a special programme for cultural exchange agreed upon by the Philippines and Indonesia or the enterprise is substantially supported from funds of the Government of Indonesia including any of its political subdivision, local authority or statutory body thereof, or unless the enterprise is a non-profit cultural organization referred to in paragraph 3 above. [Art. 17, 4] SECTION 26 . Pensions and annuities . (1) Subject to the provisions of paragraph 3 Section 27 (Government Service) of these Regulations, pensions and other similar remunerations paid to a resident of Indonesia in consideration of past employment is exempted in the Philippines. [Art. 18, 1] (2) Notwithstanding the provisions of the above paragraph, social security pension paid by a social security instrumentality of the Philippines shall be taxed in the Philippines [Art. 18, 2] SECTION 27 . Government service . (1) Remuneration, other than a pension, paid by the Government of Indonesia or a political subdivision of a local authority thereof to an individual respect of services rendered to that State or subdivision or authority thereof in the discharge of functions of a governmental nature shall be exempt from tax in the Philippines. [Art. 19, 1(a)] cd i (2) However, such remuneration is taxable in the Philippines if the services are rendered in the Philippines and the individual is a resident of the Philippines who: (i) is a Philippines national; or (ii) did not become a resident of the Philippines solely for the purpose of rendering the services. [Art. 19, 1(b)] (3) (a) Any pension paid by, or out of funds created by the Philippines or Indonesia or a political subdivision or a local authority thereof to an individual in respect of services rendered to that State or subdivision or authority is taxable only in that State. (b) However, such pension shall be taxable only in the Philippines or Indonesia if the individual is a resident of, and a national of, that State. [Art. 19, 2] (4) The provisions of the paragraph above shall apply to remuneration including pension paid in respect of services rendered in connection with a business carried on by the Government of Indonesia or a political subdivision or local authority thereof. SECTION 28 . Professors and teachers . (1) Remuneration which a professor or a teacher who is a resident of Indonesia and who visits the Philippines for a period not exceeding two years for the purpose of teaching or carrying out advanced study or research at a university, college, school or other educational institution, receives for those activities is exempted in the Philippines. [Art. 20, 1] (2) For the purpose of paragraph 1 above the term "remuneration" shall include remittances from sources outside the Philippines sent to enable the professor or teacher to carry out the purpose referred to in paragraph 1. [Art. 29, 2] (3) This Section shall not apply all remuneration which a professor or a teacher receives for conducting research if the research is undertaken primarily for the private benefit of a specific person or persons. [Art. 20, 3] SECTION 29 . Students and trainees . (1) An individual who was a resident of Indonesia immediately before visiting the Philippines and is temporarily present in the Philippines solely as a student at a university, college or other similar educational institution shall, for a period not exceeding in the aggregate five years from the date of his first arrival, be exempt from tax in the Philippines on: (a) all remittances from abroad for purposes of his maintenance or education, and (b) any remuneration not exceeding an amount in Philippine pesos, as is equivalent to US$1,800 in any calendar year for personal services rendered in the Philippines with a view of supplementing the resources available to him for such purposes. [Art. 21, 1] (2) An individual who was a resident of Indonesia immediately before visiting the Philippines and is temporarily present in the Philippines solely as a trainee for the purpose of acquiring technical, professional or business experience shall, for a period not exceeding two years from the date of his first arrival, be exempt from tax in the Philippines on: casia (a) all remittances from abroad for purposes of his maintenance or training, and (b) any remuneration not exceeding an amount in Philippine pesos, as is equivalent to US$3,600 in any calendar year, for personal services rendered in the Philippines, provided such services are in connection with his training or incidental thereto. [Art. 21, 2] (3) An individual who was a resident of Indonesia immediately before visiting the Philippines and is temporarily present in the Philippines solely for the purpose of study, research or training as a recipient of a grant, allowances or award from a scientific, educational programme entered into by the Governments of the Philippines and Indonesia shall, for a period not exceeding two years from the date of his first arrival, be exempt from tax in the Philippines on: (a) the amount of such grant, allowance or award; (b) all remittances from abroad for the purpose of his maintenance, education or training; and (c) any remuneration for personal services in the Philippines provided that such services are in connection with his study, research, training or incidental thereto. [Art. 21, 3] (4) The amounts referred to in paragraph 1 and 2 of this Section may be reviewed and agreed upon by the competent authorities of the Philippines and Indonesia from time to time. [Art. 21, 4] aisa dc SECTION 30 . Income not expressly mentioned . Items of income of a resident of Indonesia which are not expressly mentioned in the foregoing Sections of these Regulations shall be exempt in the Philippines except that, if such income is derived from sources within the Philippines, the same is taxable in accordance with the National Internal Revenue Code. [Art. 22] CHAPTER V RELIEF PROVISIONS SECTION 31 . Elimination of double taxation . (1) Subject to the provision of Section 30 (c) of the National Internal Revenue Code of 1977, as amended, Indonesian taxes paid or accrued under the laws of Indonesia in accordance with the agreement whether directly or by deduction in respect of income from sources payable in respect of that income. [Art. 23, 2] (2) Taxes which have been exempted reduced in Indonesia by virtue of the agreement of the special incentive laws of Indonesia designed to promote economic development, effective on June 18, 1981, the date of signature of the Agreement, or which may be introduced in future taxation laws in modification of, or in addition to, the existing laws, shall be considered as though such taxes has been paid and shall be allowed tax credit in the Philippines in an amount equal to the tax which would have been appropriate to the income concerned if no such exemption had been given or no such reduction had been allowed. [Art. 23, 4] SECTION 32 . Administrative reliefs ( mutual agreement procedure ). (1) Where a Filipino resident considers that the actions of the Philippines or Indonesia or both of them result or will result for him in taxation not in accordance with the provisions of the Agreement, he may, irrespective of the domestic laws of the Philippines or Indonesia, present his case in writing to the competent authority of the Philippines, stating the grounds for claiming the revision of such taxation. The case must be presented within two years from the first notification of the action resulting in that questionable taxation. [Art. 25, 1] (2) The said Philippine authority referred to above shall, if objection appears to be justified and is not able to resolve it, present the case of mutual agreement with his counterpart in Indonesia. [Art. 25, 2] (3) After the period prescribed by the National Internal Revenue Code, but in no case after 5 years from the end of the taxable period in which the income concerned has accrued, no increase shall be made on the tax base of a resident of the Philippines or of Indonesia by including therein items of income which have also been taxed in Indonesia. [Art. 25, 3] (4) The competent authority of the Philippines shall endeavor to resolve by mutual agreement with his counterpart in Indonesia any difficulties or doubts arising as to the interpretation or application of the Agreement. The competent authority of the Philippines may consult with his counter-part in Indonesia in cases not provided for in the Agreement. [Art. 25, 4] CHAPTER VI SPECIAL PROVISIONS SECTION 33 . Non-discrimination . (1) Nationals of Indonesia shall not be subjected in the Philippines to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which Philippine nationals in the same circumstances are or may be subjected. [Art. 24, 1] (2) The taxation of a permanent establishment which an enterprise of Indonesia has in the Philippines is not to be less favorably levied on enterprises of the Philippines carrying on the same activities. [Art. 24, 2] (3) Nothing in these Regulations nor in the Agreement shall be construed as granting to residents of Indonesia any personal allowances, reliefs and reductions for taxation purposes on account of civil status or family responsibilities which are granted to residents of the Philippines. [Art. 24, 2] (4) Except where the provisions of paragraph 1 of Section 11 (Associated enterprise) and Section 16 (Where special relationship between the payer and the payee exist) apply, interest, royalties and other disbursements paid by an enterprise of the Philippines to a resident of Indonesia shall, for the purpose of determining the taxable profits of such enterprise, be deductible under the same conditions as if they had been paid to a resident of the Philippines. [Art. 24, 3] cd (5) Philippine enterprise, the capital of which is wholly or partly owned or controlled, directly or indirectly, by one or more residents of Indonesia, are not to be subjected in the Philippine to any taxation or any requirement connected therewith which is other or more burdensome than the taxation and connected requirements to which similar Philippine enterprise are or may be subjected. [Art. 24, 4] (6) Nothing in these Regulations nor in the Agreement shall be construed as extending to nationals of Indonesia the enjoyment of tax incentives and any tax of preferential nature in purchase of the programme for economic development which are limited to Philippine nationals only. [Art. 24, 6] (7) In this section, the term "taxation" means taxes which are the subject of the Agreement. [Art. 24, 6] SECTION 34 . Exchange of information . (1) The competent authority of the Philippines shall exchange such information as is necessary for carrying out the Agreement and of Philippine domestic laws concerning taxes covered by the Agreement insofar as the taxation thereunder is in accordance with the Agreement. The exchange of information is not restricted by Section 2 (Personal Scope). Any information so exchange is to be treated as secret and is not to be disclosed to any persons or authorities other than those concerned with the assessment, including judicial determination, or collection of taxes which are the subject of the Agreement. [Art. 26, 1] (2) In carrying out the function prescribe by the section, the aforesaid Philippine authority shall in no case: (a) carry out administrative measures at variance with the laws or administrative practices of the Philippines or Indonesia; (b) supply particulars which are not obtained under the laws or in the normal course of its administration of the Philippines or of Indonesia; (c) supply information which discloses any trade, business, industrial, commercial or professional secret or trade process, or information, the disclosure of which will be contrary to public policy. [Art. 26, 2] acd (3) The exchange of information may be either on a routine basis or on request with reference to particular cases. The competent authorities of the Philippines and Indonesia may agree on the list of information which shall be furnished on a routine basis. [Art. 26, 3] SECTION 35 . Assistance in collection . The Philippine tax authorities may request the Indonesia tax authorities for assistance in the collection of the Philippines taxes. Likewise, the Philippine tax authorities may upon request assist the Indonesian tax authorities in the collection of Indonesian taxes. In no case shall the above paragraph be construed as to impose upon the Philippines and Indonesia the obligation to carry out measures at variance with their laws or administrative practices with respect to the collection of their laws or administrative practices with respect to the collection of their own respective taxes. [Art. 27] SECTION 36 . Diplomatic agents and consular officers . Nothing in the Agreement nor in these Regulations shall affect the fiscal privileges of diplomatic agents and consular officers under the general rules of their national law or under the provisions of special agreements. [Art. 28] SECTION 37 . Miscellaneous Rules . The provisions of the Agreement and these Regulations shall not be construed as to restrict in any manner any exclusion, exemption, deduction, credit or other allowance now or hereafter accorded: (a) by the laws of the Philippines in the determination of the tax imposed by the Philippines; or (b) by any other special arrangement on taxation in connection with the economic or technical cooperation between the Philippines and Indonesia. [Art. 29, 1] (2) Nothing in the Agreement nor in these Regulations shall be construed as preventing the Philippines from taxing its citizens who may be residing in Indonesia, in accordance with its domestic legislation. [Art. 29, 2] casia (3) The competent authorities of the Philippines may communicate directly with its counterpart in Indonesia for the purpose of applying the Agreement. Art. 29, 31] (a) in respect of taxes withheld at the source, on amounts paid to non-residents on or after the first day of January in the calendar year next following that in which the notice is given; and (b) in respect of other taxes, for taxation years beginning on or after the first day of January in the calendar year next following that in which the notice is given. [Art. 31] SECTION 38 . Effectivity . These Regulations shall take effect immediately. (SGD.) CESAR VIRATA Minister of Finance Recommended by: (SGD.) RUBEN B. ANCHETA Acting Commissioner