New tax regulations published on November 5 2009 call into
question the typical structures used for Indonesian bonds.
The new regulations address an area which has been uncertain
for some time: the availability of treaty benefits for special
purpose vehicles (SPVs) set up for financing purposes. Under
the usual structure, an Indonesian corporate sets up an SPV in
a jurisdiction with a favourable tax treaty. The SPV issues the
bond and lends the proceeds to the Indonesian company. The
intent was to reduce Indonesian withholding tax on interest
payments from the default rate of 20%, to the rate under the
tax treaty with the SPV.
This structure was used successfully for many years to
reduce the withholding tax rate on Indonesian bonds to 10%
the best rate generally available. However, in 2004 a
new tax treaty with Netherlands came into effect, which
provided for a 0% withholding rate on...