Google Tax Deal to Shake Up How Tech Firms Operate in Indonesia

Alphabet's Google Asia Pacific headquarters has agreed on its future tax payments in Indonesia, paving the way for a shake-up in how technology firms operate in Southeast Asia's biggest economy. (Reuters Photo/Francois Lenoir)

By : Cindy Silvia & Eveline Danubrata | on 8:11 PM June 15, 2017
Category : Business, Corporate News, Featured

Jakarta. Alphabet's Google Asia Pacific headquarters has agreed on its future tax payments in Indonesia, the communications minister said, paving the way for a shake-up in how technology firms operate in Southeast Asia's biggest economy.

Google has been locked in a months-long dispute over allegations by Indonesia's government that the search giant had not paid all of its taxes.

Finance Minister Sri Mulyani Indrawati said on Tuesday (13/06) that Indonesia had now reached a tax deal with Google for 2016. She declined to disclose the settlement sum.

The search giant's dispute with Indonesia has been seen as a bellwether on how the government of the country with the world's fourth-largest population may pursue other technology companies such as Facebook and Twitter to pay taxes.

"They [Google Asia Pacific] have agreed with the government on how they're going to pay taxes in the future," Communications and Informatics Minister Rudiantara, who has oversight on internet-based companies operating in Indonesia, said.

The deal may be subject to changes in Indonesia's advertising regulation, which have been proposed by the ministry, Rudiantara said.

The ministry will work with Indonesia's Investment Coordinating Board (BKPM) on the regulation, he added.

Rudiantara declined to comment on whether Google had reached an agreement with Indonesia on back taxes.

Indonesian tax officials have alleged that most of Google's revenue generated in the country is booked at its Asia Pacific headquarters in Singapore and its local entity, Google Indonesia, simply acts as a sales service provider.

Under a new agreement, Google's Indonesian entity will receive the revenue and pay expenses for its business in the country, a senior government source, who declined to be identified as the information was not public, said.

It is unclear if Google will set up a new domestic unit separate from Google Indonesia.

Google did not respond to requests for comment. A spokesman for Indonesia's tax office declined to comment.

Smaller Than Mooted

A senior tax official had said in September that Indonesia planned to pursue Google for five years of back taxes and the company could face a bill of more than $400 million for 2015 alone if it were found to have avoided payments.

Indonesian tax officials had estimated that the total advertising revenue for the industry in Indonesia was around $830 million, with Google and Facebook accounting for around 70 percent of that.

But Google had pointed to a joint study by the firm and Singapore state investor Temasek that estimated the size of Indonesia's digital advertising market at $300 million for 2015.

The overall tax settlement amount will reflect the fact that Google's Indonesia revenues are "much smaller than the bombastic figures that Finance Ministry officials have been mooting," the senior government source said.

Indonesia is eager to ramp up tax collection to narrow its budget deficit and fund an ambitious infrastructure program. Other governments around the world are also seeking to clamp down on what they see as corporate tax avoidance.

Last year, Google agreed to pay 130 million pounds ($166 million) in back taxes to settle a probe by Britain's tax authority, while Thailand is studying plans to toughen tax collection rules for internet and technology firms.

Reuters

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