Timothy Jevon Lieander

14/361200/EK/19720

Meeting 12: Tax Treaty ASEAN

For the Faculty of Economics and Business, Universitas Gadjah Mada
References: KPMG International 2013 ASEAN Tax Guide, KPMG Asia Pacific Tax Center Guide

Introduction
The need of the knowledge and further understanding regarding to the ASEAN Tax
matter including the Tax Treaty among the ASEAN countries is derived from the fact that in
the year of 2007, 10 ASEAN member countries made an agreement of the creation of the
ASEAN Economic Community (AEC) and ASEAN Free Trade Area (AFTA). This new economic
corporation will make it necessary for the ASEAN member countries to negotiate and make
a deal that comforts both of them including the tax matter in form of the agreement that is
called as the Tax Treaty. For this case it is called as the Tax Treaty ASEAN.

Summary
KPMG has made several key characteristic that identifies the AEC:

A competitive economic region

A region of equitable economic development

A region fully integrated into the global economy

AEC is a corporation that consist of 10 ASEAN member countries, the total population of
those 10 member countries is forecasted to reach 700 million people by 2020. Although, the
community has become effective since the December 2015, many believe that during the
first several years of its creation; the fully integrated economic community of south-east
Asia will not exist. However, it is predicted that the AEC will presents new opportunity for
ASEAN member states to create a competitive regional environment and it holds the
potential to transform ASEAN into the worlds next economic powerhouse. The one that is
needed in business among the ASEAN countries is the harmonization.
Based on the agreement in the AEC 2015 blueprint, there are several amendments of
tax policies:

The recognition of intellectual property as a major determinant of local value and

external competitiveness (item 44)

A call to harmonize the policy and legal infrastructure for e-commerce (item 59)

An objective to realize a more comprehensive investment agreement which

would increase investor confidence in ASEAN (item 26) and provide enhanced
protection to all investors and investment (item 27).

The Implication can come from the difference of Corporate Tax among ASEAN
countries, the different tax regulation has made the countries issue an alternative of the
same tax treatment that can help in eliminating the incentive of tax payers to shift from
high-tax jurisdiction to low-tax jurisdiction. Harmonization is heralded as a model for
regional integration but typically is that it limits member states sovereignty by restricting
the ability to decide their own tax rates as matter of national policy.
The problem may also arise from the difference of the Indirect Tax such as the
VAT/GST and Customs among the ASEAN member countries. The AEC will currently open up
a market of over 600 million people in countries where the average GDP growth is 5.4%.
This is believed to push consumer expenditure to a predicted 1.5 trillion by 2020. Along with
the increasing prevalence of middle-class segment the demand of goods and service will
increase the tax among ASEAN countries.
The requirement for freedom of trade among the ASEAN countries, it is expected
that by the implementation of AEC, the ASEAN-6 that includes Singapore, Thailand,
Philippines, Brunei, Indonesia and Malaysia and also the CMLV (Cambodia, Laos, Myanmar,
and Vietnam will set out the Common Effective Preferential Tariffs for ASEAN Free Trade
Area (CEPT AFTA) agreement.
Here is the Double Tax Treaty Coverage that has existed among ASEAN countries,