Indonesia Plans to Bill Google For Back Taxes and Fines

By Resty Woro Yuniar 

JAKARTA, Indonesia -- 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.

Muhammad Haniv, head of the tax office's special cases unit, said in an interview that a team of four tax investigators met with Google's Indonesian unit Monday, the latest escalation in a growing dispute between government and the technology firm. He said they discussed the alleged back taxes and audit of the unit's tax compliance records.

"If we take this case to court, Google could be fined four times the tax it owes us," Mr. Haniv said. He added that Indonesia will also pursue taxes from as far back as 2011, when Google first established a presence in the country. "Now we are still investigating them," he said.

A Google spokesman confirmed the meeting and said that the company "has been and will continue to cooperate with the government and (has) paid all applicable taxes in Indonesia."

Mr. Haniv said Indonesian tax authorities believe that Google's regional headquarters in Singapore, Google Asia Pacific Pte. Ltd., owes about $76 million in income and value-added taxes on the profit it earned from Indonesian advertisers last year. In an interview, Mr. Haniv said investigators estimated that Google Asia Pacific's total revenue from Indonesia last year reached up to $455 million, generating some $152 million in profit.

Tax authorities say that Google Indonesia operates only as what it describes as an event organizer for the Singapore operation, Google Asia Pacific. The Singapore unit handles all the contracts from Indonesian advertisers and pays all of Google Indonesia's expenses, adding an additional 8% that is booked as the Indonesian business's profit, Mr. Haniv said.

Mr. Haniv said this amount is tiny compared with the revenue generated by Google Asia Pacific from advertisers, and said this practice is "unfair and against the law."

"We will move forward with the investigation," Mr. Haniv said. "We are not willing to let them drain our (digital advertising) income but pay on a little tax."

Google declined to comment on Mr. Haniv's specific allegations.

Tax authorities said that last year Google and Facebook collected 70% of Indonesia's total digital advertising revenue of $830 million, and the government has been pressing for more tax revenue from the business for several months. Indonesia is struggling to meet its tax collection target of $117 billion this year to fund President Joko Widodo's plans to modernize and expand the country's infrastructure. An amnesty program introduced earlier this year has gotten off to a slow start, raising $1.73 billion of its $12.5 billion target as of Sept. 16.

Indonesia's move also comes amid growing scrutiny into the tax affairs of big-name tech firms. In late August, the European Union's antitrust regulator demanded that Ireland recoup roughly $14.5 billion of unpaid taxes accumulated over more than a decade by Apple Inc., saying that rules prohibit government from helping companies gain advantages over their competitors.

Mr. Haniv said that Indonesia's tax investigators will next examine Facebook's tax records.

Write to Resty Woro Yuniar at [e-mail]

(END) Dow Jones Newswires

September 19, 2016 11:14 ET (15:14 GMT)

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