ARTICLE 2

Taxes Covered

Paragraph 1 identifies the existing taxes to which the Convention applies in each country.

In the case of the United States, the taxes covered are the income taxes imposed by the Internal Revenue Code, but not including the accumulated earnings tax, the personal holding company tax, or social security taxes. It is understood that the reference to the Internal Revenue Code includes the amendments made by the 1986 Tax Reform Act and the technical corrections thereto. Except for purposes of non-discrimination (Article 24) and exchange of information (Article 26), the Convention does not apply to Federal taxes other than income taxes, such as

excise, sales, unemployment, or gift and estate taxes. State and local taxes are not covered by the Convention.

In the case of Indonesia, the Convention applies to the income tax, including the company tax to the extent provided in the income tax, and the tax on interest, dividends, and royalties. Other national level taxes are also covered for purposes of Articles 24 (Nondiscrimination) and 26 (Exchange of Information).

Paragraph 2 provides that taxes imposed after the date of signature of the Convention also are covered if they are substantially similar to the taxes referred to in paragraph 1.

In accordance with paragraph 5 of Article 26 (Exchange of Information), the competent authorities agree to advise each other of significant changes in their tax laws and of other official decisions affecting the application of the Convention.