Google raided as Indonesia launches criminal inquiry over unpaid tax claim

US tech multinational subject of government investigation amid allegations it dodged paying taxes over five years in South East Asian country.
A sticker reading 'Review us on Google' is pictured at a shop in Ambassador Mall in Jakarta, Indonesia. The government today raided the US company's offices in the capital over unpaid taxes allegations. Beawiharta / Reuters
A sticker reading 'Review us on Google' is pictured at a shop in Ambassador Mall in Jakarta, Indonesia. The government today raided the US company's offices in the capital over unpaid taxes allegations. Beawiharta / Reuters

Indonesia plans to pursue Alphabet’s Google for five years of back taxes, and the search giant could face a bill of more than US$400 million for 2015 alone if it is found to have avoided tax payments, a senior tax official said.

Muhammad Hanif, the head of the tax office’s special cases branch, said its investigators went to Google’s local office in Indonesia on Monday.

The tax office believes that Google Indonesia paid less than 0.1 per cent of the total income and value-added taxes it owed last year.

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 into a criminal one, Mr Hanif said.

“Google’s argument is that they just did tax planning,” he 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.”

Asked to respond to Mr Hanif’s comments, Google Indonesia reiterated a statement made last week that said it continues to cooperate with local authorities and has paid all applicable taxes.

Mr Hanif estimated Google’s tax bill including fines for 2015 could be as much as 5.5 trillion rupiah (Dh1.53 billion). He declined to provide an estimate for the five-year period.

The tax office is also planning to chase back taxes from other companies that deliver content through the internet in Indonesia, Mr Hanif said.

Total advertising revenue for the industry is estimated at $830m a year, with Google and Facebook Inc accounting for around 70 per cent of that, he said.

The Google raid comes on the same day that Engie has been added to a growing list of companies probed for allegedly unfair tax deals as European Union anti-trust regulators opened an in-depth investigation into its tax affairs with Luxembourg.

Several so-called tax rulings that the company, formerly known as GDF Suez, received from Luxembourg may have given it “an unfair advantage over other companies, in breach of EU state aid rules,” the European Commission said on Monday.

The Brussels-based watchdog said it will investigate whether Luxembourg tax authorities selectively deviated from provisions of national law in rulings given to the company. The arrangement appears “to treat the same financial transaction between companies of GDF Suez in an inconsistent way, both as debt and as equity”, it said.

“Financial transactions can be taxed differently depending on the type of transaction, equity or debt – but a single company cannot have the best of two worlds for one and the same transaction,” said the EU anti-trust commissioner Margrethe Vestager. The tax rulings in this case “seem to contradict national taxation rules and allow GDF Suez to pay less tax than other companies”.

Luxembourg said no special tax treatment or selective advantage had been awarded to any Engie unit in Luxembourg.

business@thenational.ae

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Published: September 19, 2016 04:00 AM

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