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Google Settles Tax Dispute with the Government of Indonesia

Zacks

Alphabet Inc.’s GOOGL Google has reached a tax settlement for 2016 with the government of Indonesia.

Indonesia’s Finance Minister Mulyani Indrawati stated that "We already have an agreement with them based on 2016. But we can't disclose the figure.” However, there was no information on the taxes for the other years.

In September last year, a senior tax official had stated that Indonesia’s tax agency was planning to bill Google for five years of back taxes and associated fines and the company might have to pay over $400 million for 2015 alone if found guilty.

The tax office raided the company’s regional headquarters in Singapore, Google Asia Pacific Pte. Ltd. the same month after it refused to be audited in June. Google senior executives and Indonesian tax officials have been meeting since then and negotiating the dispute.


In November, Wall Street Journal reported that Google was in the process of settling taxes with the Indonesian government, as part of which it might pay back taxes and fines and revise its profit calculation methodology in the country.

Indonesia has been pressing on multinationals such as Google, Apple AAPL, Twitter TWTR and Yahoo YHOO to pay taxes in order to narrow its budget deficit and boost infrastructure spending. Other governments across the globe are also working on cracking down on tax avoidance by multinational companies.

Last year, Google reached an agreement with U.K. tax officials to pay £130 million ($164 million) in back taxes.

Should Investors Worry?

Google is involved in a legal battle across practically all continents. Apart from being a huge drain on resources, these have earned it a bad name on privacy concerns, anti-competitive concerns and patent infringements.

Alphabet Inc. Total Expenses (TTM)

So, while investors keep an eye on such developments, we believe that Google offers them a lot more to cheer than to worry. Google has shown good execution to date. Its search market share is a big positive, which along with its focus on innovation, strategic acquisitions and Android OS continues to generate strong cash flows.

Alphabet has had an impressive run on the bourse over the last one year. The company gained roughly 31.2%, higher than the Zacks categorized Internet-Services sub-industry’s addition of about 21.5%.

Not only did it take the mobile market transition in its stride but also started developing machine learning and artificial intelligence for the future. As Alphabet generates significant cash from operations and also holds a huge cash balance, management has the flexibility to pursue growth in potential areas and various markets.

We believe that the company has the financial muscle to overcome any short-term headwinds and continue pursuing its initiatives.

Alphabet currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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