Article 12 of the Convention is — U.S. Income Tax Treaty

of a Contracting State would qualify for the exemption from tax at source, provided in paragraph 3, for interest payments to such entities that arise in the other Contracting State. These entities are limited to the Government of each Contracting State, including its political subdivisions and local authorities, the central banks of the Contracting States, and any other financial institution owned or controlled by the Government of a Contracting State. For example, interest payments to the State Bank of Indonesia would qualify for exemption from U.S. tax, and interest payments to any of the Federal Reserve Banks or to the U.S. Export-Import Bank would be exempt from Indonesian tax. At the same time, interest payments to non-financial State owned or Statecontrolled institutions that are not a part of the Government itself (such as State-owned hospitals,

educational institutions, and industrial concerns) would not qualify for the exemption.

The language of paragraph 3 of Article 12 allows taxation only by the country of residence. This language, which is found in several other Indonesian tax treaties, is equivalent to exemption from tax at source.