Google faces Indonesia investigation over allegations of unpaid taxes

INDONESIA’s tax office will investigate Alphabet’s Google for suspected unpaid taxes in Southeast Asia’s largest economy, a senior finance ministry official said on Thursday.

Muhammad Hanif, head of the specials cases branch in the tax office, said Google’s refusal to co-operate after it was sent a letter in April requesting to be allowed to examine the firm’s tax reports had raised suspicions.

“We will elevate this to an investigation because they refused to be examined, and this is definitely an indication of criminal activity,” Hanif told a news conference.

He added that the investigation would not be launched until the end of September at the earliest.

Taj Meadows, head of policy communication for Google in Asia Pacific, declined to comment immediately on the issue, but said the company would revert as “soon as it can”.

The government had also asked to examine the tax reports of the Indonesian offices of three other US Internet based companies — Yahoo, Twitter and Facebook. The three companies have complied, officials said.

Yahoo and Google have formed Indonesian limited liability companies, while Twitter and Facebook operate branches of their Asia-Pacific offices in Indonesia. The government believes these companies owe income and value added tax on billions of dollars of revenue they generate from advertising in Indonesia, the tax office said.

Hanif said Google’s Indonesian entity was only allocated around 4% of the total revenues generated from the country, and it was this amount that was taxed, which he described as too small and “unfair”.

The communications ministry had estimated the value of digital advertising in Indonesia at about $800m in 2015.

The ministry said that all of it was untaxed.

Indonesia is facing a sizeable revenue shortfall in 2016 as the resource-rich country can no longer rely on commodityrelated income.

In a separate development, the tax office said it was checking whether Ford Motor had avoided paying appropriate taxes, after a local newspaper reported that the US car maker modified imported Everest model vehicles sold in Indonesia to pay a lower tax rate. If the car maker is proven to have caused state losses, it may have to pay back taxes of up to four times the amount it owed, according to Indonesian law.