Indonesia Wants Google to Set Up Local Company & Pay Tax
Indonesia's Communication and Information Ministry urges American multinational technology company Google to set up a permanent establishment in Indonesia. This way Google, which is owned by US multinational conglomerate Alphabet Inc, would need to start paying taxes to Indonesian authorities. Currently, Google only has a representative office in Indonesia, while transactions and revenue generated in Indonesia are booked at Google Inc's Asia Pacific headquarters located in Singapore.
Indonesian Communication and Information Minister Rudiantara says it would be only fair that - if domestic players are required to pay taxes - global players who make an earning in the same market (Indonesia's online advertisement) should also be subjected to local tax obligations. Noor Iza, Head of the ministry's sub-directorate for technology and e-business infrastructure, added that it would also 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.
In India Google has already set up a permanent establishment enabling all transactions and revenue generated in India to be booked at this entity. Iza said that India obtains a significant amount of tax money from Google. Therefore, it would be fair if Indonesia is treated the same way for revenue that is generated in Indonesia.
Earlier it was reported that Singapore-based Google Asia Pacific declined to be audited in June 2016 (on grounds that it is only doing tax planning), prompting Indonesia's Tax Office to threaten that it will conduct a more thorough investigation into "Google's tax avoidance" in Indonesia and may turn the case into a criminal one. In late September the investigation is scheduled to be conducted. Muhammad Hanif, Head of the Tax Office's Special Cases Department, said Google could face claims for five years of back taxes, including a bill of over USD $418 million for full-year 2015 as the company is estimated to have paid less than 0.1 percent of the total income and value-added taxes it owed Indonesia in 2015.
Over the past year Indonesian authorities have expressed their displeasure with the so-called “over-the-top” (OTT) giants, a term used for the delivery of film and TV content via Internet, as they have been hesitant to set up permanent establishments in Indonesia and therefore pay little taxes to the Indonesian government. Besides Google, this also involved Yahoo, Facebook and Twitter.
It is estimated that in Indonesia the online advertisement market is worth USD $1 billion in 2016, up from approximately USD $800 million in the preceding year. However, this industry remains largely untaxed and is dominated (for 70 percent) by the OTT giants such as Google and Facebook.
Minister Rudiantara added that not only Indonesian authorities are displeased at Google's reluctance to pay taxes over the money it makes in Indonesia. Authorities in England, Italy as well as France are also investigating similar issues in their countries.