On 28 April 2020, Indonesia deposited its instrument of ratification for the Multilateral Instrument (MLI) with the OECD. Indonesia’s list of reservations and notifications to the MLI identifies 47 tax treaties that it wishes to be covered by the convention (including France).

The MLI will enter into force for Indonesia three months after the deposit of its instrument of ratification, i.e. 1 August 2020. Therefore, the earliest the MLI may take effect for Indonesia is:

• for withholding taxes, on income (including lease income) derived on or after 1 January 2021;
• for all other taxes, for income years starting on or after 1 August 2020; and
• for dispute resolution, generally on or after 1 August 2020.

The Principal Purpose Test under article 6 of the MLI may have an impact on the treaty benefits in relation to lease payments from Indonesia to a number of jurisdictions (including France where the MLI entered into force on 1 January 2019).

Specific to the Double Tax Agreement between Indonesia and France, the inclusion of Article 6 – Principal Purpose Test may have an impact on the application of treaty benefits to lease payments made to a French tax resident.

The Indonesian tax authorities have yet to release guidance dealing with the Principal Purpose Test in the MLI.

If you have any questions please contact your regular Deloitte contact.