Back tax contagion as Indonesia stalks Google

Inspired by the European Commission the Indonesian government has set its sights on Google, with the internet giant possibly facing a bill of $400 million in back taxes for 2015 alone.

Muhammad Haniv, who heads up the tax office’s special cases branch, told Reuters tax officials have been investigating Google for some time, and paid a visit to Google’s local office in Indonesia on Monday. The Indonesian tax office claims PT Google Indonesia paid less than 0.1% of the total tax it owed for 2015, though the bill could grow into the billions as the team plans to pursue the internet giant for five years of back taxes.

The whole issue was escalated after Google Asia Pacific, based in Singapore declined to be audited in June. The Indonesian tax office felt forced escalate the case into a criminal one, though Google might take some comfort it might not be alone in the naughty corner for long. Haniv said tax officials are also investigating other internet players who operate in the country.

While $400 million is certainly a serious chunk of change, it does pale in comparison to the €13 billion plus interest bill Apple is facing in Ireland. While the legitimacy of that saga has been called into question on the American side of the Atlantic, the European Commission’s investigation of Apple, which initially begun in 2014, has seemingly instigated a worldwide witch hunt with various tax authorities attempting to corner several Silicon Valley giants.

What has Europe kicked off!?!

Aside from its problems in Europe, Apple is also facing a challenge in the Japanese market where it could face charges of over $100 million. Uber could be on the worse end of a $6.3 million tax bill in Taiwan and Facebook is addressing its own hurdles in Ireland with a $5 billion back taxes bill. Although the technology industry has been grabbing the headlines over recent months, it’s not the only one facing difficulties. McDonalds has also fallen foul of the European Commission facing $500 million in back taxes itself.

Apple and co. are generally being accused of aggressive tax avoidance and what some might describe as ‘creative’ accounting. Apple, for instance, created an Irish company called Apple Sales International back in 1991, which acted as the hub for all its European sales. Thanks to a reduced corporation tax deal between Ireland and Apple, the company recorded profits in the region of €22 billion in 2011 but claimed only €50 million of that was considered taxable in Ireland, which amounted to an effective corporation tax rate of 0.05%, with that rate shrinking further to 0.005% by 2014. Uber’s bill was brought about following Taiwanese regulators decision to rework the tax structure for foreign online businesses. These are two examples of technology companies being caught out, but are unlikely to be the last.

The technology industry has been a favourite of both private and institutional investors over recent years due to high profits and seemingly unlimited growth potential. Should these high profits be eroded, the technology industry may lose its position as golden child of the stock market.

For the moment, the tech giants will continue to bring in big rewards for its investors, though should the Indonesian government be successful in pursuing Google it could set a worrying precedent for the industry, as cash strapped governments around the world lick their lips at the prospect of bolstering dwindling back accounts with Silicon Valley-flavoured notes.