Indonesia launches tax hunt on Google
The government has stepped up efforts to collect what it says are millions of dollars of outstanding tax liabilities from Singapore-based Google Asia Pacific Pte. Ltd., which has allegedly booked hefty revenue from Indonesian advertisers without paying proper taxes.
The message to the tech giant is clear: we want a fair share of what you take.
Jakarta Special Tax Office head Muhammad Haniv confirmed on Tuesday that tax investigators had visited Google’s office in the capital city on the previous day as part of an investigation into the company’s suspected refusal to undergo a state audit of its tax obligations.
Google, he added, could face criminal charges on audit refusal as stipulated in the 2009 Tax Law if investigators found sufficient evidence.
Haniv said investigators were also seeking information about whether Google had a permanent establishment (BUT) in Indonesia, as the tax office plans to collect back taxes from revenue Google has generated in Indonesia over the last five years.
Haniv did not specify the amount of Google’s unpaid income and value-added taxes for the five-year period, but said the firm could be subject to fines of up to Rp 5.5 trillion (US$418 million) for 2015 alone.
“If Google generates income from Indonesia, it has to pay taxes. It is immoral if Google refuses to do so,” Haniv told The Jakarta Post on Tuesday.
Indonesia has been struggling to find alternative sources of state revenue as it feels the pinch of the global economic slowdown and plunging energy prices. The government’s ongoing tax amnesty program, for example, is expected to help plug the widening state-budget deficit, with tax-revenue realization accounting for less than half of the 2016 target with less than four months left in the year.
Haniv estimated that total internet advertising revenue could amount to around $820 million a year, 70 percent of which was made by Google, whose video-sharing site YouTube has become an increasingly popular outlet for advertisers to air their commercials.
The tax authority earlier confirmed that an independent Indonesian firm, PT Google Indonesia, had been carrying out work under instruction from Singapore-based Google Asia Pacific Pte. Ltd. A contract between the two firms, Haniv said, stipulated that the former received 3 percent of the latter’s revenue or a reimbursement and a fee for such works instructed by its Singaporean counterpart.
Communications and Information Minister Rudiantara issued a circular earlier this year permitting over-the-top (OTT) services to be provided by foreign individuals or legal entities with an obligation to establish a BUT.
On Friday, Finance Minister Sri Mulyani said Indonesia was committed to hunting down both Google and OTT companies alike to force them to comply with local tax regulations.
Google, meanwhile, said it would continue to cooperate with the Indonesian authorities, but claimed that it had complied with all tax regulations in the country.
In January, Google agreed to pay £130 million ($169 million) in back taxes to settle a British tax authority probe, which had challenged the company’s low tax returns in the years before 2005, Reuters reported.
Center for Indonesia Taxation Analysis (CITA) executive director Yustinus Prastowo, said Indonesia had two options to resolve the Google conundrum, either extend the definition of a BUT or implement a regulation akin to that of the UK’s Google Tax, which targets offshore profits.
“Extending the BUT definition can be done by declaring that a virtual presence is considered to be an entity,” Yustinus said.
