Vienna Convention on the Law of Treaties 1969 or Vienna Convention is International Treaties that regulates international treaties between states including general law and principle in conducting international treaties. The Vienna Convention defines international treaties as “international agreement[s] concluded between States in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation”. It contains the fundamental principles guiding every treaty. Principles of special importance include the principles of pacta sunt servanda, good faith, free will, equality, reciprocity, and lack of retroactivity.
Pacta sunt servanda is regarded as the most important principle of treaty law and entails that a treaty is obligatory to the parties which must act accordingly. The principle of free will of parties to enter a treaty means that the process of creation of the free will of the state/entity must be free and uninfluenced from other actors or external factors. The principle of good faith requires parties to act fairly and honestly with each other, to express their real intentions and not to gain unjust benefits that might come from wrong interpretations of their agreement. The principle of reciprocity means that parties are linked in a corresponding relationship, with mutual rights and obligations towards each other. Lastly, the principle of lack of retroactivity of treaties means that they shall regulate only relations from the moment they enter into force and on, and that they cannot apply to relations that have started prior to that moment, unless parties agree otherwise or the treaty is considered as part of international customary law.[1]
Globally, almost all of the states have ratified the Vienna Convention, but certain countries, for example Indonesia, have not ratified the convention. Although Indonesia did implement the Vienna Convention implicitly through its own modified national law according to Law No.24 of 2000 regarding International Law. There are several points that Indonesia could not proceed from the Vienna Convention including but not limited to points of ratification and termination. Despite that Indonesia complies with the main principle of the Vienna Convention. Therefore, tax treaties as examples of Indonesian Bilateral Treaties (one of the types of international treaties) could be in line with the implementation of the Vienna Convention with objectives in taxes. Hereby some example of Indonesian tax treaties with some partnering countries in which some of part of the treaties match with the fundamental principle of Vienna Convention and one principle that might in line with Indonesia Law No. 24 which is termination principle that might not in line with Vienna Convention:
| Principles | Point on Tax Treaties | ||
| Indonesia-US | Indonesia-China | Indonesia-Singapore | |
| Pacta Sunt Servanda | It shall enter into force one month after the date of exchange of the instruments of ratification (Article 30) | This Agreement shall enter into force on the later of the date on… (Article 28) | The Agreement shall enter into force on the date of the later of these notifications and its provisions shall have effect (Article 29 (2)) |
| Free Will | The term “one of the Contracting States” of “the other Contracting State” means Indonesia or the United States, as the context requires. (Article 3(1c)); Means both parties have free will to put themselves in contract. | …. The respective Governments may notify each other in writing that the formalities constitutionally required in their respective States have been complied with (Article 28) | Each Contracting State shall notify the other in writing through diplomatic channels of the completion of the procedures required by its law for the bringing into force of this Agreement (Article 29(1)) |
| Good Faith | …in order to prevent double taxation or to further any other purpose of this Convention, establish a common meaning of the term for the purposes of the Convention. (Article 3(2)) | For the purposes of this Agreement, unless the context otherwise requires…. (Article 3) Means both parties have good faith for making common ground on avoidance of double taxation | Intending to conclude an Agreement for the elimination of double taxation with respect to taxes on income without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (Preface) |
| Reciprocity | This Convention is applicable to persons who are residents of one or both of the Contracting States. (Article 1) | This Agreement shall apply to persons who are residents of one or both of the Contracting States. (Article 1) | This Agreement shall apply to persons who are residents of one or both of the Contracting States. (Article 1) |
| Lack of Retroactivity | It shall enter into force one month after the date of exchange of the instruments of ratification (Article 30) | This Agreement shall also apply to any identical or substantially similar taxes which are imposed after the date of signature of the Agreement… (Article 2) | This Agreement shall apply also to any identical or substantially similar taxes that are imposed after the date of signature of the Agreement in addition to, or in place of, the existing taxes (Article 2) |
| Terminantion | This Convention shall remain in force until terminated by one of the Contracting States. (Article 31) | This Agreement shall continue in effect indefinitely but either of the Contracting States may, on or before the thirtieth day of June in any calendar year beginning after the expiration of a period of five years from the date of its entry into force, give written notice of termination to the other Contracting State through the diplomatic channels. (Article 29) | This Agreement shall remain in force until terminated by a Contracting State. Either Contracting State may terminate the Agreement through diplomatic channels, by giving written notice of termination at least six months before the end of any calendar year after the expiration of a period of five years from the date of its entry into force. (Article 30) |
In conclusion, even though Indonesia did not ratify Vienna Convention, Indonesia still complies with fundamental principles of Vienna Convention which are Pacta Sunt Servanda, Free Will, Good Faith, Reciprocity and Lack of Retroactivity. Tax Treaties between Indonesia with partnering countries could be proof that Indonesia did implement the Vienna Convention fundamental principle implicitly even though there might be differences on which article that might represent each principle on each tax treaties. At the same time Indonesia also has a principle that is not in line with the Vienna Convention, for example is termination principle that mostly also could be found in the end of each tax treaties.
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[1] Shtupi, I. (2017, January 1). An overview of the Vienna Convention on the law of treaties and its principles. Academia.edu. Retrieved December 7, 2022, from https://www.academia.edu/63297718/An_Overview_of_the_Vienna_Convention_on_the_Law_of_Treaties_and_Its_Principles
By Olina Rizki Arizal – International Tax & Transfer Pricing Partner
