2. TAXABLE INCOME
24. According to the Company-Tax Ordinance, companies resident in N.E.I. are taxable on their total profits obtained in whatever form or name, whether through the carrying on of a business or the investment of capital outside of that business. It is immaterial whether the sources of the income are situated abroad or in N.E.I.
25. Non-resident companies are taxable only on income from the following sources in N.E.I.:
note note26. According to an official commentary of the Ordinance, tax liability arises in the case of non-resident companies when they have economic relations (economische betrekking) with N.E.I. — for instance, carry on a business or own real property in the country. Such economic relations determine the extent of the tax liability, as only the profit accruing from such relations is taxable. The Ordinance does not specify the circumstances in which a foreign company is considered as carrying on business within N.E.I. In practice, however, liability arises if the foreign company has a permanent establishment there.
27. A foreign enterprise carrying on business through a subsidiary company organised in N.E.I. has not been treated until now as a taxpayer, but the question as to whether or not the subsidiary company should be treated as a branch is still much debated. Except in some parts of Northern Sumatra, where native princes rule, only Dutch subjects or companies incorporated in the Netherlands or in N.E.I. may hold a title of leasehold or concession (Article 11 of the Agrarian Ordinance, 1872, No. 116). Thus a foreign company, wishing to carry on an agricultural or mining enterprise in N.E.I., is compelled to organise a subsidiary company (dummy) in the Netherlands or N.E.I. As the concessions or leasehold are registered in the name of the dummy, this company is taxed for the profits of the enterprise, though it exists only juridically and is totally dependent on the holding company for its financial resources. If, however, the transactions between the subsidiary and the parent company were conducted in such a manner that the true profits of the subsidiary did not appear in its books, certain officials would be inclined to assess the foreign holding company itself through the dummy as its organ.