ARTICLE 23

Relief from Double Taxation

This Article specifies the method by which each of the Contracting States will avoid international double taxation of its residents, and in the ease of the United States its citizens, with respect to income from sources in the other Contracting State.

Paragraph 1 provides that the United States will allow a credit for taxes paid to Indonesia, subject to the limitations of United States law for the taxable year. The Convention does not guarantee an indirect (Section 902) credit, since Indonesian law does not provide a credit for the underlying corporate tax in such cases. In determining the limitation, the source of income is governed by the rules of Article 7 (Source of Income), subject to the source rules of the Internal Revenue Code which apply solely for the purpose of determining the limitation. It is understood by the treaty partners that, for purposes of the alternative minimum tax imposed by the Tax Reform Act of 1986, the foreign tax credit allowable may be limited to 90 percent of the precredit liability for such tax.

Paragraph 2 provides that Indonesia will allow a credit for taxes paid to the United States, subject to the limitations of Indonesian law for the taxable year. In determining the limitation, the source of income is governed by the rules of Article 7 (Source of Income).

Each Contracting State will apply its domestic law to determine what is C creditable tax.