JAKARTA: The global and local media has reported that the Indonesian government decided to collect tax arrears for the past 5 years from Google, estimated at over $400 million for 2015 alone. Indonesia is the first Southeast Asian nation that will collect tax arrears from Google.
Earlier this year, Google’s head office in Paris was inspected by the local government, with the request of paying $1.76 billion in tax arrears. In 2013, the UK accused Google of tax evasion.
In recent years, the question whether Google and Facebook has dodged or evaded taxes and how to collect taxes from these groups has been repeatedly raised.
In Vietnam, advertising on Google and Facebook is done via two methods: through agents and online transactions. For the first method, only a few firms have registered and paid taxes for the services.
For the second one, there is no provision to adjust and it is difficult to determine income. Under Decree 72 on internet service management dated September 1, 2013, all the companies which provide cross-border services must comply with Vietnamese laws.
This means that Facebook and Google, which have revenue in Vietnam, must fulfill their tax duties in Vietnam. Under the current laws, their activities of providing services must be covered by the Ministry of Finance’s Circular 134 on foreign contractor tax (FCT).
The circular stipulates that FCT is required if foreign individuals and institutions provide advertising and marketing services to Vietnamese individuals and institutions and the services are made overseas.
To declare and pay FCT, businesses have to set up representative offices or branches in Vietnam and must use the Vietnamese accounting system. However, both Facebook and Google do not have branches in Vietnam, which means that they do not follow Vietnam’s accounting standards.
Facebook only has a media representative in Vietnam, but it has a representative office in Vietnam. Meanwhile, Google does not have any legal entity, branch or representative, but it has staff working for Google in Vietnam.
As such, Vietnam not only cannot collect corporate income tax from the companies, but also cannot control the personal income tax payment. The workers of the companies are paid 2-3 times as much as the workers of other companies, but they don’t have to pay personal income tax to Vietnam.
Under Decree 72, the companies which provide cross-border services don’t have to set up representative offices in Vietnam. However, analysts commented that the regulation has ‘lent a hand’ to the companies to evade tax.
Meanwhile, a lawyer said that there is no clear definition about the ‘services provided and consumed outside Vietnam’, or the ‘ad services made overseas’. As a result, it is difficult to apply the FCT to the companies providing cross-border services.
As a result, he said, Vietnam loses a huge amount of money from failing to collect tax from the companies which earn hundreds of millions of dollars from the services provided to Vietnam.
According to statistics, total online advertising revenue of the Vietnamese market in 2014 was about $216 million and $329 million in 2015. Of which, revenue of Google and Facebook skyrocketed from $65 million and $80 million in 2014 to $100 million and $140 million in 2015, respectively.
If Vietnam can collect taxes fully, from value-added tax to corporate income or contractor tax, the tax revenue from these groups would be up to hundreds of million USD.
However, apart from a modest amount of “contractor tax”, Vietnam has not collected anything from these giants.
