LIPPO-MAPLETREE - Lippo Malls Indonesia Retail Trust - Investor ...

Risk factorsSuch compulsory acquisitions would have an adverse effect on the financial condition, operating resultsand the value of LMIR Trust’s asset portfolio.Terrorist attacks in Indonesia could destabilise the country.Terrorist acts in Indonesia could destabilise Indonesia and increase internal divisions within theIndonesian government as it evaluates responses to that instability and unrest. Violent acts arisingfrom, and leading to, instability and unrest have in the past had, and may continue to have, a materialadverse effect on investment and confidence in, and the performance of, the Indonesian economy, andmay have a material adverse effect on the Master Lessee’s business, financial condition, results ofoperations and future prospects. This could adversely impact the ability of the tenants of the Retail Mallsand the Master Lessee to make rental payments to the Indonesian SPCs.Economic changes in Indonesia may adversely affect the Master Lessee’s business.The economic crisis which affected Southeast Asia, including Indonesia, around mid-1997 wascharacterised in Indonesia by, among other effects, currency depreciation, negative economic growth,high interest rates, social unrest and extraordinary political developments. These conditions had materialadverse effects on Indonesian businesses.The economic difficulties faced by Indonesia during the Asian economic crisis in 1997 resulted in, amongother things, significant volatility in interest rates, which had a material adverse impact on the ability ofmany Indonesian companies to service their existing indebtedness.In addition, Indonesia relies heavily on aid from the International Monetary Fund (“IMF”), loans from theWorld Bank and the members of the Paris Club, as well as from the Consultative Group on Indonesia(“CGI”). The inability of the Indonesian government to obtain adequate funding, in the event of atermination of the IMF program, or a reduction or elimination of funding from the World Bank and themembers of the Paris Club or the CGI, could have adverse economic, political and social consequences inIndonesia, which in turn, could have a material adverse effect on the Master Lessee’s business, financialcondition, results of operations and future prospects.A loss of investor confidence in the financial system of emerging and other markets may cause increasedvolatility in the Indonesian financial markets, and a slowdown or negative growth could have materialadverse effects on the Master Lessee’s business, financial condition, results of operations and prospects.Demand for retail services are largely dependent on the purchasing power of shoppers and theirwillingness to pay for retail services. A slowdown in the Indonesian economy or a high unemploymentrate may require more people to adopt a prudent approach towards spending, resulting in a lower demandfor retail services.The Singapore-Indonesia tax treaty may be applied in a manner adverse to the interests of theUnitholders.The Indonesian tax rules generally require a 20.0% tax to be withheld on the payment of a dividend orinterest from an Indonesian taxpayer to an offshore tax resident. Under the double tax treaty betweenSingapore and Indonesia, the rate of withholding tax is reduced to 10.0% on the payment of a dividend orinterest to a Singapore tax resident which is the beneficial owner of this payment. The reduced rate isavailable to a Singapore company only if the company submits an original copy of the certificate of domicileto the Indonesian payor prior to the payment of the income.On 7 July 2005, the Directorate General of Taxation in Indonesia issued a circular letter indicating that thebenefits of Indonesia’s double tax treaties would not be available to a recipient of Indonesian-sourcedincome that was not the beneficial owner of such income. The circular letter further elaborated that a SPVwhich is a “conduit company”, “paper box company”, “pass through company”, or any similar form of entitywould not qualify as the beneficial owner of payments received by it.The independent tax advice from PB&Co, the Independent Indonesian Tax Adviser, sets out that thereduced withholding tax rate of 10.0% should apply to the payment of interest and dividends to aSingapore tax-resident beneficial owner. Under Singapore income tax law, the Singapore SPCs wouldbe considered tax resident in Singapore if the control and management of their business is exercised in81