Many foreigners own properties in Bali, such as hotel, homestay, villa, etc. To avoid the amount of tax they have to pay, foreign owners usually do transactions overseas, as marketing the properties via the internet. After they have finally got deals on room rates, the prospective guests will make payment in form of bank transfer to a bank account in a foreign country that is owned by the owners. There will be no payment transaction between the owner and the guest while they are in Bali, so owners usually do not have any physical evidence of the transaction to be disclosed to the tax officer. This can reduce the amount of income tax that has to be paid. From the case above, the residential status of a foreign owner firstly needs to be decided then examination needs to be done in order to determine the amount of tax that should be paid.
Article 4 paragraph (1) of OECD Model mentions that the definition of 'resident of a contracting state' is taken from the concept of 'residence' in the domestic tax law. Under this domestic law, the criteria of subject to tax that is considered to be 'resident' are based on: the domicile, residence, place of management, or other criteria.
Article 4 paragraph (2) of P3B sets the tie break rule, which is the criteria to determine if a resident taxpayer is regarded as resident by the two states that are practicing in P3B. The first criterion of the tie breaker rule is Permanent Home, which is the place where the individual has lived and in which the house is permanent. Holiday homes, business trips, or continuing education are not included. Permanent Home can be in form of a house, owned or rented apartment, or a rented room that is fully furnished.
When the residential status cannot be determined because the individual has permanent homes in both countries, the second criterion is the Centre of Vital Interest, which is the place where personal and economic relations are done more closely. Centre of Vital Interest means the place where family relationships, social, work, politics, culture, place of business, and wealth administration and others mostly occur.
If the residential status could not be determined because the individual has permanent homes in both countries and cannot also be determined by the Centre of Vital Interest, then the determination is done by the Habitual Abode criterion, which is the country where they most often live, whether in a permanent home or other places, and for any purposes. So how long the individual lives in that country is really counted.
However, if residential status still cannot be determined with the habitual abode, then citizenship status becomes the determinant of the residential status. If still the residential status cannot be specified, then the determination can also be performed by tax authorities of both countries by doing mutual agreement as in the Article 25 of the OECD Model Tax Convention.
Thus, the foreign owner mentioned above, should have the status of "resident" in Indonesia with center of vital interest criterion, in which this can be taxed by the domestic tax law. The next issue will be, how much is the amount of tax to be paid? With PER-41/PJ/2011, foreign tax examination can be done. One of the basic examinations that is done abroad is an exchange of information that allows the state parties to the tax treaty to exchange information that can be seen, for example, in article 26 (5) of the OECD Model it is even said that the information covered in the article includes:
•Banking data
•Ownership data
In practice, it is not easy to carry out the tax audit overseas because a country may limit the information that is exchanged due to banking secrecy. For example Singapore as the state party to the Tax Treaty with Indonesia does not regulate banking secrecy. With PER-41/PJ/2011, there is a means for the DJP to carry out inspection towards foreigners who have income from sources that cannot be traced directly.
