The Government of the United States of America and the Government of the Republic of Indonesia, desiring to conclude a convention for the avoidance of double taxation of income and the prevention of fiscal evasion, have agreed as follows: ARTICLE 1 Personal Scope 　　This Convention is applicable to persons who are residents of one or both of the Contracting States. ARTICLE 2 Taxes Covered 　　(1) The existing taxes which are the subject of this Convention are: 　　(a) In the case of Indonesia, the income tax (pajak penghasilan 1984), 　　(b) and to the extent provided in such income tax, the company tax (pajak perseroan 1925), and the tax on interest, dividends, and royalties (pajak atas bunga, dividen dan royalty 1970). 　　(b) In the case of the United States, the income taxes imposed by the Internal Revenue Code (but excluding the accumulated earnings tax, the personal holding company tax, and social security taxes). 　　(2) The Convention shall also apply to any identical or substantially similar taxes which are subsequently imposed in addition to, or in place of, the existing taxes. ARTICLE 3 General Definitions 　　(1) For purposes of this Convention only, unless the context otherwise requires: 　　(a) The term "Indonesia" comprises the territory of the Republic of Indonesia and the adjacent seas which the Republic of Indonesia has sovereignty, sovereign rights or jurisdictions in accordance with the provisions of the 1982 United Nations Convention on the Law of the Sea. 　　(b) The term "United States" means the United States of America. When used in a geographical sense, the term "United States" means the States thereof, the District of Columbia and those parts of the continental shelf and adjacent seas over which the United States has sovereignty, sovereign rights or other rights in accordance with international law. 　　(c) The term "one of the Contracting States" or "the other Contracting State" means Indonesia or the United States, as the context requires. 　　(d) The term "person" includes an individual, a partnership, a company, an estate, a trust, or any body of persons. 　　(e) The term "company" means any body corporate or any entity which is treated as a body corporate for tax purposes. 　　(f) The term "competent authority"' means: 　　(i) In the case of Indonesia, the Minister of Finance or his authorized representative, and 　　(ii) In the case of the United States, the Secretary of the Treasury or his authorized representative. 　　(g) The term "Indonesian tax" means tax imposed by Indonesia to which this Convention applies by virtue of Article 2 (Taxes Covered) and the term "United States tax" means tax imposed by the United States to which this Convention applies by virtue of Article 2 (Taxes Covered). 　　(h) The term "international traffic" means any transport by a ship or aircraft, except where such transport is solely between places in the other Contracting State. 　　(2) Any other term used in this Convention and not defined in this Convention shall, unless the context otherwise requires, have the meaning which it has under the laws of the Contracting State whose tax is being determined. Notwithstanding the preceding sentence, if the meaning of such a term under the laws of one of the Contracting States is different from the meaning of the term under the laws of the other Contracting State, or if the meaning of such a term is not readily determinable under the laws of one of the Contracting States, the competent authorities of the Contracting States may, in order to prevent double taxation or to further any other purpose of this Convention, establish a common meaning of the term for the purposes of the Convention. ARTICLE 4 Fiscal Residence 　　(1) In this Convention, the term "resident of a Contracting State" means any person who under the laws of that State is liable to tax therein by reason of his domicile, residence, place of incorporation, place of management or any other criterion of a similar nature. For purposes of United States tax, in the case of a partnership, estate, or trust, the term applies only to the extent that the income derived by such person is subject to United States tax as the income of a resident, either in its hands or in the hands of its partners or beneficiaries. 　　(2) Where by reason of the provisions of paragraph (1) an individual is a resident of both Contracting States: 　　(a) he shall be deemed to be a resident of that Contracting State in which he maintains his permanent home. If he has a permanent home in both Contracting States or in neither of the Contracting States, he shall be deemed to be a resident of that Contracting State with which his personal and economic relations are closest (center of vital interests); 　　(b) if the Contracting State in which he has his center of vital interests cannot be determined, he shall be deemed to be a resident of that Contracting State in which he has a habitual abode; 　　(c) if he has a habitual abode in both Contracting States or in neither of the Contracting States, he shall be deemed to be a resident of the Contracting State of which he is a citizen; and 　　(d) if he is a citizen of both Contracting States or of neither Contracting State, the competent authorities of the Contracting States shall settle the question by mutual agreement. 　　For purposes of this paragraph, a permanent home is the place where an individual dwells with his family. 　　(3) An individual who is deemed to be a resident of one of the Contracting States and not a resident of the other Contracting State by reason of the provisions of paragraph (2) shall be deemed to be a resident only of the first-mentioned Contracting State for all purposes of this Convention, including Article 28 (General Rules of Taxation). 　　(4) Where by reason of the provisions of paragraph (1) a company is a resident of both Contracting States, when it shall be deemed to be a resident of the State in which it is organized or incorporated. ARTICLE 5 Permanent Establishment 　　(1) For the purpose of this Convention, the term "permanent establishment" means a fixed place of business through which the business of a resident of one of the Contracting States is wholly or partly carried on. 　　(2) The term "permanent establishment" includes but is not limited to: 　　(a) a place of management; 　　(b) a branch; 　　(c) an office; 　　(d) a factory; 　　(e) a workshop; 　　(f) a farm or plantation; 　　(g) a warehouse; 　　(h) a mine, oil or gas well, quarry, or other place of extraction of natural resources; 　　(i) a building site or construction or assembly or installation project, or supervisory activities in connection therewith, or an installation or drilling rig or ship used for the exploration or exploitation of natural resources, which exists or continues for more than 120 days; 　　(j) the furnishing of services, including consultancy services, through employees or other personnel engaged for such purposes, but only where activities of that nature continue (for the same or a connected project) for more than 120 days within any consecutive 12-month period, provided that a permanent establishment shall not exist in any taxable year in which such services are rendered in that State for a period or periods aggregating less than 30 days in that taxable year. 　　(3) Notwithstanding paragraphs (1) and (2), a permanent establishment shall not be deemed to exist by reason of one or more of the following: 　　(a) the use of facilities solely for the purpose of storage or display of goods or merchandise belonging to the resident; 　　(b) the maintenance of a stock of goods or merchandise belonging to the resident solely for the purpose of processing by play; 　　(c) the maintenance of a stock of good or merchandise belonging to the resident solely for the purpose of processing by another person; 　　(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or for collecting information, for the resident; or 　　(e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research, or for similar activities which have a preparatory or auxiliary character, for the resident. 　　(4) A person acting in one of the Contracting States on behalf of a resident of the other Contracting State, other than an agent of an independent status to whom paragraph (5) applies, shall be deemed to be a permanent establishment in the first-mentioned Contracting State if such person- 　　(a) has and habitually exercises in the first-mentioned Contracting State, an authority to conclude contracts on behalf of that resident, unless the activities of such person are limited to those mentioned in paragraph (3) which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions, of that paragraph; or 　　(b) has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise belonging to the resident from which he regularly fills orders or makes deliveries on behalf of that resident and additional activities conducted in that State on behalf of the resident have contributed to the sale of such goods or merchandise. 　　(5) A resident of one of the Contracting States shall not be deemed to have a permanent establishment in the other Contracting State merely because such resident carries on business in that other Contracting State through a broker, general commission agent, or any other agent of an independent status, where such broker or agent is acting in the ordinary course of his business. 　　(6) The fact that a company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State or which carries on business in that other State (whether through a permanent establishment or otherwise) shall not of itself constitute either company a permanent establishment of the other. 　　(7) An insurance company which is a resident of one of the Contracting States, shall, except with regard to reinsurance, be considered as having a permanent establishment in the other Contracting State if, through a person other than one described in paragraph (5), such company receives premiums from or insures risks in the territory of that other Contracting State. ARTICLE 6 Income from Immovable (Real) Property 　　(1) Income from immovable property, including income in respect of the operation of mines, oil or gas wells, quarries, or other natural resources and gains derived from the sale, exchange, or other disposition of such property or of the right giving rise to such income, may be taxed by the Contracting State in which such immovable property, mines, oil or gas wells, quarries, or other natural resources are situated. For purposes of this Convention, interest on indebtedness secured by immovable property or secured by a right giving rise to income in respect of the operation of mines, quarries, or other natural resources shall not be regarded as income from immovable property. 　　(2) Paragraph (1) shall apply to income derived from the usufruct, direct use, letting, or use in any other form of immovable property. 　　(3) The provisions of paragraphs (1) and (2) shall also apply to the income from immovable property of an enterprise and to income from immovable property used for the performance of independent personal services. ARTICLE 7 Source of Income 　　For purposes of this Convention: 　　(1) Dividends paid by a resident of a Contracting State shall be treated as income from sources within that State. 　　(2) Interest shall be treated as income from sources within a Contracting State only if paid by such Contracting State, a political subdivision or a local authority thereof, or by a resident of that Contracting State. Notwithstanding the preceding sentence, if the person paying the interest (whether or not such person is a resident of one of the Contracting States) has a permanent establishment in one of the Contracting States and such interest is borne by such permanent establishment, such interest shall be deemed to be from sources within the Contracting State in which the permanent establishment is situated. 　　(3) Royalties described in paragraph (3) of Article 13 (Royalties) for the use of, or the right to use, property or rights described in such paragraph within a Contracting State shall be treated as income from sources within such Contracting State. 　　(4) Income from immovable property including income in respect to the operation of mines, oil wells, quarries, or other natural resources (including gains derived from the sale of such property or the right giving rise to such income) shall be treated as income from sources within a Contracting State only if such property is situated in that Contracting State. 　　(5) Income from the rental of tangible personal (movable) property, other than ships or aircraft or containers used in international traffic, shall be treated as income from sources within a Contracting State only if such property is situated in that Contracting State. 　　(6) Income received by an individual for his performance of labor or personal services, whether as an employee or in an independent capacity, shall be treated as income from sources within a Contracting State only to the extent that such services are performed in that Contracting State. Income from personal services performed aboard ships or aircraft operated by a resident of one of the Contracting States in international traffic shall be treated as income from sources within that Contracting State if rendered by a member of the regular complement of the ship or aircraft. For purposes of this paragraph, income from labor or personal services includes pensions (as defined in paragraph (4) of Article 21 (Private Pensions and Annuities)) paid in respect of such services. Notwithstanding the preceding provisions of this paragraph, remuneration described in Article 22 (Social Security Payments) shall be treated as income from sources within a Contracting State only if paid by or from the public funds of that Contracting State or a political subdivision or local authority thereof. 　　(7) Income from the sale, exchange or other disposition of property described in paragraph (1) (a) and (b) of Article 14 (Capital Gains) shall be treated as income from sources within Indonesia or the United States, as the case may be. 　　(8) Notwithstanding paragraphs (1) through (6), business profits which are attributable to a permanent establishment which the recipient, a resident of one of the Contracting States, has in the other Contracting State, including income derived from immovable property and natural resources and dividends, interest, royalties (as defined in paragraph (3) of Article 13 (Royalties)) and capital gains shall be treated as income from sources within that other Contracting State, but only if the property or rights giving rise to such income, dividends, interest, royalties, or capital gains are effectively connected with such permanent establishment. 　　(9) The source of any item of income to which paragraphs (1) through (8) are not applicable shall be determined by each of the Contracting States in accordance with its own law. Notwithstanding the preceding sentence, if the source of any item of income under the laws of one Contracting State is different from the source of such item of income under the laws of the other Contracting State or if the source of such income is not readily determinable under the laws of one of the Contracting States, the competent authorities of the Contracting States may, in order to prevent double taxation or further any other purpose of this Convention, establish a common source of the item of income for purposes of this Convention. ARTICLE 8 Business Profits 　　(1) Business profits of a resident of one of the Contracting States shall be exempt from tax by the other Contracting State unless such resident carries on business in that other Contracting State through a permanent establishment situated therein. If such resident carries on business as aforesaid, tax may be imposed by that other Contracting State on the business profits of such resident but only on so much of such profits as are attributable to the permanent establishment or are derived from sources within such other Contracting State from sales of goods or merchandise of the same kind as those sold, or from other business transactions of the same kinds as those effected, through the permanent establishment. 　　(2) Where a resident of one of the Contracting States carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to the permanent establishment the business profits which would be attributable to such permanent establishment if such permanent establishment were an independent entity engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the resident of which it is a permanent establishment. 　　(3) In the determination of the business profits of a permanent establishment, there shall be allowed as deductions expenses which are reasonably connected with such profits, including executive and general administrative expenses, whether incurred in the Contracting State in which the permanent establishment is situated or elsewhere. However, no such deduction shall be allowed in respect of amounts, if any, paid (otherwise than towards reimbursement of actual expenses) by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or by way of commission for specific services performed or for management, or by way of interest on moneys lent to the permanent establishment. Likewise, no account shall be taken, in the determination of the profits of a permanent establishment, for amounts charged (otherwise than towards reimbursement of actual expenses), by the permanent establishment to the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights or by way of commission for specific services performed or for management or by way of interest on moneys lent to the head office of the enterprise or any of its other offices. 　　(4) No profits shall be attributed to a permanent establishment of a resident of one of the Contracting States in the other Contracting State merely by reason of the purchase of goods or merchandise by that permanent establishment, or by the resident of which it is a permanent establishment, for the account of that resident. 　　(5) Where business profits include items of income which are dealt with separately in other articles of this Convention, the provisions of those articles shall, except as otherwise provided therein, supersede the provisions of this Article. ARTICLE 9 Shipping and Air Transport 　　(1) Notwithstanding Article 8 (Business Profits), a resident of a Contracting State shall be exempt from taxation by the other Contracting State with respect to income derived by that resident from the operation of ships or aircraft in international traffic. 　　(2) For the purposes of paragraph (1), income from the operation of ships or aircraft in international traffic includes: 　　(a) income from the rental of ships or aircraft in international traffic on a full basis; 　　(b) income from the rental of aircraft on a bareboat basis if the aircraft is operated in international traffic; 　　(c) income from the rental of ships on a bareboat basis if the ship is operated in international traffic and the lessee is not a resident of the other Contracting State or a permanent establishment in that other State; and 　　(d) income from the use or maintenance of containers (and related equipment for the transport of containers) used in international traffic if such income is incidental to the income described in paragraph (1). 　　(3) Notwithstanding Article 14 (Capital Gains), gains derived by a resident of a Contracting State from the alienation of ships or aircraft operated in international traffic or containers (and related equipment for the transport of containers) used in international traffic shall be taxable only in that State. ARTICLE 10 Related Persons 　　(1) Where a resident of one of the Contracting States and any other person are related and where such related persons make arrangements or impose conditions between themselves which are different from those which would be made between independent persons, any income, deductions, credits, or allowances which would, but for those arrangements or conditions, have been taken into account in computing the income (or loss) of, or the tax payable by, one of such persons, may be taken into account in computing the amount of the income subject to tax and the taxes payable by such person. 　　(2) A person is related to another person if either person participates directly or indirectly in the management, control or capital of the other, or if any third person or persons participates directly or indirectly in the management, control or capital of both. For this purpose, the term "control" includes any kind of control, whether or not legally enforceable, and however exercised or exercisable. 　　(3) Where a Contracting State includes in the profits of a resident of that State, and taxes accordingly, profits on which a resident of the other Contracting State has been charged to tax in that other State, and the profits so included are profits which would have accrued to the resident of the first-mentioned State if the conditions made between the two residents had been those which would have been made between independent persons, then that other State shall make an appropriate adjustment to the amount of the tax charged therein on those profits. In determining such adjustment, due regard shall be paid to the other provisions of this Convention and the competent authorities of the Contracting States shall if necessary consult each other. ARTICLE 11 Dividends 　　(1) Dividends derived from sources within one of the Contracting States by a resident of the other Contracting State may be taxed by both Contracting States. 　　(2) However, if the beneficial owner of the dividends is a resident of the other Contracting State, the tax charged by the first-mentioned State may not exceed 15 percent of the gross amount of the dividends actually distributed. 　　(3) Paragraph (2) shall not apply if the recipient of the dividends, being a resident of one of the Contracting States, has a permanent establishment or fixed base in the other Contracting State and the shares with respect to which the dividends are paid are effectively connected with such permanent establishment or fixed base. In such a case the provisions of Article 8 (Business Profits) or Article 15 (Independent Personal Services) shall apply. 　　(4) Where a company which is a resident of a Contracting State has a permanent establishment in the other Contracting State, that other State may impose an additional tax in accordance with its law on the profits attributable to the permanent establishment (after deducting therefrom the company tax and other taxes on income imposed thereon in that other State) and on interest payments allocable to the permanent establishment, but the additional tax so charged shall not exceed 15 percent. 　　(5) The rate of tax referred to in paragraph (4) of this Article shall not affect the rate of any such additional tax contained in any production sharing contracts and contracts of work (or any other similar contracts) relating to oil and gas or other mineral products negotiated by the Government of Indonesia, its instrumentality, its relevant State oil company or any other entity thereof with a person who is a resident of the United States. ARTICLE 12 Interest 　　(1) Interest derived from sources within one of the Contracting States by a resident of the other Contracting State may be taxed by both Contracting States. 　　(2) The rate of tax imposed by one of the Contracting States on interest derived from sources within that Contracting State and beneficially owned by a resident of the other Contracting State shall not exceed 15 percent of the gross amount of such interest. 　　(3) Notwithstanding paragraphs (1) and (2), interest derived from sources within one of the Contracting States by the other Contracting State or any agency or instrumentality of that other State not subject to tax by that State on its income shall be exempt from tax in the firstmentioned State. 　　(4) Paragraph (2) shall not apply if the recipient of the interest, being a resident of one of the Contracting States, has a permanent establishment or fixed base in the other Contracting State and the indebtedness giving rise to the interest is effectively connected with such permanent establishment or fixed base. In such a case the provisions of Article 8 (Business Profits) or Article 15 (Independent Personal Services) shall apply. 　　(5) Where any amount designated as interest paid to any related person exceeds an amount which would have been paid to an unrelated person, the provisions of this Article shall apply only to so much of the interest as would have been paid to an unrelated person. In such a case the excess payment may be taxed by each Contracting State according to its own law, including the provisions of this Convention where applicable. 　　(6) The term "interest" as used in this Convention means income from bonds, debentures, Government securities, notes, or other evidences of indebtedness, whether or not secured by a mortgage or other securities and whether or not carrying a right to participate in profits, and debt-claims of every kind, as well as all other income which, under the taxation law of the Contracting State in which the income has its source, is assimilated to income from money lent. ARTICLE 13 Royalties 　　(1) Royalties derived from sources within one of the Contracting States by a resident of other Contracting State may be taxed by both Contracting States. 　　(2) The rate of tax imposed by a Contracting State on royalties derived from sources within that Contracting State and beneficially owned by a resident of the other Contracting State shall not exceed 15 percent of the gross amount of royalties described in paragraph 3(a) and 10 percent of the gross amount of royalties described in paragraph 3(b). 　　(3) (a) The term "royalties" as used in this Article means payments of any kind made as consideration for the use of, or the right to use, copyrights of literary, artistic, or scientific works (including copyrights or motion pictures and films, tapes or other means of reproduction used for radio or television broadcasting), patents, designs, models, plans, secret processes or formula, trademarks, or for information concerning industrial, commercial or scientific experience. It also includes gains derived from the sale, exchange, or other dispositions of any such property or rights to the extent that the amounts realized on such sale, exchange or other disposition for consideration are contingent on the productivity, use, or disposition of such property or rights. 　　(b) The term "royalties" as used in this Article also includes payments by a resident of one of the Contracting States for the use of, or the right to use, industrial, commercial or scientific equipment, but not including ships, aircraft or containers the income from which is exempt from tax by the other Contracting State under Article 9 (Shipping and Air Transport). 　　(4) Paragraph (2) shall not apply if the recipient of the royalty, being a resident of one of the Contracting States, has in the other Contracting State a permanent establishment or fixed base and the property or rights giving rise to the royalty is effectively connected with such permanent establishment. In such a case the provisions of Article 8 (Business Profits) or Article 15 (Independent Personal Services) shall apply. 　　(5) Where any amount designated as a royalty paid to any related person exceeds an amount which would have been paid to an unrelated person, the provisions of this Article shall apply only to so much of the royalty as would have been paid to an unrelated person. In such a case the excess payment may be taxed by each Contracting State according to its own law, including the provisions of this Convention where applicable.