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Indonesian authorities are threatening to hit Google with a $400 million tax bill

AP/Dita Alangkara
Bring it down. Way down.
By Steve Mollman
Published Last updated This article is more than 2 years old.

It appears they weren’t kidding. Earlier this year Indonesian authorities announced that Google and other foreign tech giants would have to pay local taxes—or risk having their online services blocked or bandwidth reduced. This month tax officials have been putting the heat on the search giant. Over the past few weeks, the company says, it’s had about eight meetings with the authorities.

“Everyone must comply, whoever they may be,” Muhammad Haniv, the head of special taxpayers at the finance ministry, told Bloomberg. “If you refuse to be audited, then we will keep chasing you.”

The way the tax office sees it, in 2015 Google paid less than 0.1% of the total income and value-added taxes it owed. If found guilty, the company could be required to pay up to four times what it owed. That could result in a tax bill of up to 5.5 trillion rupiah ($418 million) for last year alone. But that’s not all: Indonesian authorities plan to seek five years of back taxes from the company.

Google counters those numbers are not based in reality, citing third-party reports that say Indonesia’s entire digital advertising market was worth only about $300 million in 2015.

Indonesia is under pressure to collect more tax revenue. Last year the nation suffered its worst tax-revenue shortfall in over a decade; meanwhile, it’s looking to fund big infrastructure projects and reduce its budget deficit.

But the Southeast Asian nation is not alone in seeking more tax revenue from US tech giants. Instead it’s following the lead of the EU nations. French authorities looking into tax evasion raided Google’s Paris office (paywall) in May; Spanish officials did the same at the company’s Madrid office in June. In January Italian officials said they’re pursuing Google for about $327 million in back taxes over six years (paywall). During that same month Google reached a $185 million settlement with the British government over back taxes, in a deal that earned widespread criticism for being too lenient on the company.

Under tax treaties, typically companies owe taxes on profits only if they have a permanent establishment in a nation. Indonesia has been asking internet companies to set up permanent local entities for tax purposes since at least April. The nation has a fairly attractive market for companies like Google, with the world’s fourth-largest population and a rapidly emerging middle class.

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