The Reconstruction of Tax Treaty In Indonesia

The reduction in tax revenue sources due to tax treaty relates to the reciprocal consequences of differences in tax rates and taxation systems of tax treaty partners. Thus, the tax treaty policy is supposed to be profitable for every country being involved, despite it can lead to unequal income exchange for one of the tax treaty partner countries. This research is a normative juridical research that analyzed secondary data consisting of primary legal materials, secondary legal materials and tertiary legal materials. A qualitative juridical analysis was performed in analyzing secondary and primary data. In the process of initiating the formation of tax treaty, Indonesia did not have a standard policy or standard operating procedure (SOP) to determine when and how to propose and respond to proposals from other countries regarding tax treaty requests. Indonesia has been considered successful in maintaining taxation rights on business profits and enforcing the principles of force of attraction income. Meanwhile, regarding the right to tax international shipping businesses, Indonesia must admit the authority of the Organization for Economic Co-operation and Development Model. Regarding the dividends, interest and royalties’ policies, Indonesia often plays moderate with a fifty-fifty policy on tariff restrictions.