Indonesia intends to pursue Alphabet Inc’s (GOOGL.O) Google for five years of back taxes, and the search giant could face a bill of more than $400 million for 2015 alone when it is found to have prevented payments, a senior tax official said.
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 alleges PT Google Indonesia paid less than 0.1 percent of the entire income and value-added taxes it owed last year.
Requested to react to Hanif’s comments, Google Indonesia reiterated a statement made last week in which it said it has paid all appropriate taxes and continues to collaborate with local authorities.
He declined to provide an approximation for the five-year period.
Most of the revenue generated in the country is booked at Google’s Asia Pacific headquarters in Singapore. Google Asia Pacific declined to be audited in June, prompting the tax office to escalate the case Hanif said.
“Google’s argument is they merely did tax preparation,” Hanif said. “Tax planning is authorized, but competitive tax planning – to the extent the state where the revenue is made does not get anything – is just not lawful.”
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.
Globally, it really is uncommon for a state investigation of corporate tax arrangements to be escalated into a criminal case.
It usually takes at least three years for an Indonesian court to make a decision on a tax criminal case, said Yustinus Prastowo, executive director of the Center for Indonesia Taxation Investigation.
The tax office is intending to chase back taxes from other companies that deliver content through the internet (over-the-top service providers) in Indonesia, Hanif said.
The Indonesian communication and information ministry is working on a fresh regulation for OTT providers, and the tax office has proposed a company with a “network existence” in Indonesia should also be subject to taxation.
Total advertising revenue for the business is estimated at $830 million a year, with Google and Facebook Inc (FB.O) accounting for around 70 percent of that, based on Hanif.
A combined study by Google and Singapore state investor Temasek released earlier this year, however, estimated the size of the digital advertising market of Indonesia at $300 million for 2015.