Indonesia Goes After Google

Indonesia Goes After Google

Following in the footsteps of the EU’s decision on Apple’s tax obligations, the Indonesian government announced this week that it plans on looking into Google’s tax payments, a move that might cost the American Internet giant more than $400 million for 2015.

According to Muhammad Haniv, Indonesia’s top authority for special tax cases, Google only paid the country 0.1 percent of the income and value-added taxes owed for 2015, prompting the Indonesian government to pursue unpaid taxes for as far back as 2011.

Haniv stated that if Google were to be found guilty of failing to pay the correct amount in taxes, the American multinational would be heftily fined and liable for a payment hovering around $420 million for 2015.

“Google’s argument is that they just did tax planning,” Haniv said. “Tax planning is legal, but aggressive tax planning – to the extent that the country where the revenue is made does not get anything – is not legal.”

A Google spokesperson said about the investigation, “Google Indonesia has been incorporated as a local company in Indonesia since 2011. We have been and will continue to co-operate with the government and have paid all applicable taxes in Indonesia.” 

This case follows ones in Italy, France and the UK in which the American Internet giant was ordered to pay back taxes and interest stemming from tax optimization strategies.

Indonesia Economy

Countries Fight Back Thanks to Transnational Initiatives

Assisted by all of the OECD and EU-led initiatives to combat tax avoidance, jurisdictions throughout the world are now better equipped to stand up to multinational companies’ aggressive tax planning.

Crawford Spence, Accounting Professor at Warwick Business School, told Reuters, ““In recent decades multinationals have scoured the globe looking for low tax jurisdictions, effectively engaging in rate-shopping as part of tax minimisation strategies. Now, with initiatives at the transnational level…countries are starting to develop the confidence to hit back.”

Plus, in Indonesia’s case, the government is looking for greater ways to boost its revenues and take a bigger cut of the region’s growing Internet advertising sector.

In an opinion piece for The Jakarta Post, Esther Samboh writes that in Indonesia, per a PriceWaterhouseCoopers study, “Internet advertising will be the fastest growing segment in the entertainment and media industry over the next five years with a growth rate of 21.3 percent to reach $92 million by 2018.”

She adds, “The clock is ticking for the government to take advantage of this potentially massive taxation revenue stream from Google. There are many options to realize this opportunity, starting from an inquiry, regulations that fit into the company’s local business model — with the Google tax, BUT [Permanent Establishment] regulation revision and international cooperation — to thoroughly monitoring the implementation of such new rules.”

Indonesia economy and finance

One of the ideas being tossed around is for multinational companies to be forced to set up a PE in Indonesia, whose online advertisement market is valued at $1 billion for 2016.

According to Noor Iza, Head of Indonesia’s Communication and Information Ministry's Sub-directorate for Technology and E-business Infrastructure, “it would…be proper for Google to set up a permanent legal entity in Indonesia because several top officials at Google have expressed earlier that the largest economy of Southeast Asia constitutes a key emerging market for Google, similar to the markets of India and Brazil.”

Furthermore, Yustinus Prastowo, the Executive Director of the Center for Indonesia Taxation Analysis (CITA), believes the country has two options available to deal with Google: setting up a diverted profits tax like the UK’s or re-configuring the definition of a PE in the country.

“Extending the BUT definition can be done by declaring that a virtual presence is considered to be an entity,” Yustinus said.

In any case, it seems countries are becoming bolder and bolder when it comes to confronting multinational companies that operate within their borders and partake in aggressive tax planning.

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