ARTICLE 3 — U.S. Income Tax Treaty

General Definitions

Paragraph 1 defines the meaning of some terms as they are used in the Convention. Unless the context otherwise requires, the defined terms have the same meaning throughout the Convention. A number of other important terms are defined in other articles. For example, See Article 4 (Fiscal Residence), Article 5 (Permanent Establishment), and paragraph 3 of Article 13 (Royalties).

Paragraph 1 defines the geographical scope of the two countries to include the adjacent seas to the extent that the respective country has rights over such areas in accordance with international law. An accompanying exchange of notes confirms that Indonesia respects international rights and obligations with respect to transit of its arch pelagic waters in accordance with international law as reflected in Part IV of the 1982 United Nations Convention on the Law of the Sea. The United States does not, for purposes of the Convention, include Puerto Rico, the Virgin Islands, Guam, or any other U.S. possession or territory.

The definitions of the terms "person", "company", and "international traffic" are consistent with the definitions in the U.S. Model Draft Income Tax Convention of June 1981.

The competent authority for the United States is the Secretary of the Treasury or his authorized representative. The competent authority for Indonesia is the Minister of Finance or his authorized representative.

The terms "United States tax" and "Indonesian tax" do not include penalty and interest charges. However, the Competent authorities may, in accordance with Article 25 (Mutual Agreement Procedure), seek to ensure that such penalties or interest are imposed or paid in a manner consistent with the objectives of the Convention.

Paragraph 2 provides that, in general, undefined terms shall be defined according to the

law of the Contracting State whose tax is being determined. However, if the meaning differs from that under the law of the other Contracting State, or if it is not readily determinable, the competent authorities may establish a common meaning for the purposes of applying the Convention.