Google may face major Indonesia tax bill

Indonesia’s tax agency plans to bill Alphabet Inc.’s Google unit for up to $380 million in back taxes and fines that the search giant allegedly owes from 2015. If found guilty, the tech company may face a tax bill of around $400m for 2015 alone.

The Indonesian taxman alleges that PT Google Indonesia paid less than 0.1 per cent of both the income and value-added taxes it estimates it owed previous year.

Muhammad Hanif, head of the special cases division of the tax office, told Reuters its investigators went to the local office in Indonesia of Google on Monday.

The tax office is planning to pursue Google over five years of unpaid taxes.

“We will elevate this to an investigation because they refused to be examined, and this is definitely an indication of criminal activity”, Hanif told a news conference.

Taj Meadows, head of policy communication for Google in Asia Pacific, declined to comment immediately on the issue, but said the company would revert as “soon as it can”.

Indonesia’s Internet economy is expected to be worth $81 billion in 10 years, according to the e-conomy SEA 2016 report revealed in May by Google and Singapore’s sovereign wealth fund Tamsek Holdings.

On Thursday, a senior finance ministry official released a statement about the investigation.

Hanif said Google’s Indonesian entity was only allocated around 4% of the total revenues generated from the country, and it was this amount that was taxed, which he described as too small and “unfair”.

Yahoo and Google have formed Indonesian limited liability companies, while Twitter and Facebook operate branches of their Asia-Pacific offices in Indonesia.

Managers will be summoned by the tax office from Google Indonesia who also hold positions Hanif said, adding that it is working with the Indonesian authorities.

Hanif said, “Google’s argument is that they just did tax planning”.

Yustinus Prastowo, Executive Director of the Center for Indonesia Taxation Analysis, said, “It normally takes at least three years for an Indonesian court to make a decision on a tax criminal case”.

The tax office is planning to chase back taxes from other companies that deliver content through the internet (over-the-top service providers) in Indonesia, Hanif said.

Total advertising revenue for the industry is estimated at $830m a year, with Google and Facebook Inc accounting for around 70 per cent of that, he said.

The country’s Communication and Information Ministry is now preparing new tax rules for over-the-top providers.