Google’s total reported revenue in the Asia-Pacific region in 2018 was US$ 21.37 billion, of which US$ 20.24 billion stems from Google Asia Pacific Lt. (Google APAC), based in Singapore. Still, Singapore only has a population of 5.8 million.
India has a population 235 times bigger than Singapore, but Google India Private Limited only reported a turnover of around US$ 1.34 billion (93.37 billion Indian Rupees, the exchange rate on 31 December 2018) in 2018 as stated on its annual return.
Why does 94 percent of Google’s APAC revenue come from Singapore? Google India accounts for the remaining 6 percent which means that Google in other Asian countries did not report a significant revenue for 2018. Let’s have a closer look at Google’s main source of income: advertising.
Worldwide, 85 percent of Alphabet Inc.’s (Google) 2018 revenue stemmed from advertising. In Asia, Google APAC generated US$ 15.8 billion in revenue from advertising versus US$ 4.4 billion for other activities like Google Play in the same year. So, advertising is also the main source of income for Google APAC, similar to Google worldwide.
Advertising involves advertisers and publishers. Advertisers are businesses paying Google to display their ad on Google properties like Google.com, Gmail, Google Maps and Google Play. Google Network Members, or publishers, offer advertising space on their websites, mobile games, apps or videos to Google and compete for advertisers.
Publishers in Asia (including Thailand, Japan, Indonesia, Australia and Hong Kong) and advertisers in Thailand, Hong Kong and South Korea get an agreement with Google APAC in Singapore for some payment methods, even if they are based elsewhere and Google has an office in their country as well. (Google.com is currently blocked in China).
Advertisers in Indonesia enter into terms with PT Google Indonesia, in India with Google India Private Limited, in Japan with Google Japan GK, and in Australia with Google Australia Pty Ltd. But as we saw before, Google APAC in Singapore is attributed the bulk of all advertising revenue in Asia, even though the other countries’ offices have hundreds of employees.
Google (Thailand) Company Limited, for example, has between 150 and 200 employees or contractors listed on LinkedIn. Job positions at the Bangkok office include Head of Ads Marketing, Marketing Specialist, Agency Relationship Manager and Communications Manager.
Employees at Google Thailand are responsible for “Develop[ing] end-to-end marketing strategies with a team of 4 on various channels such as YouTube, Facebook, Google Display Network, to increase Thailand Google[’s] search daily active users, driving up to 2X YoY growth.” They also “Lead all comms initiatives for Google in Thailand”.
Advertising revenue generated as a result of those activities are attributed to Google APAC in Singapore, as the Google Ads agreement shows. That means that Google Thailand does not pay tax in Thailand over the advertising revenue attributed to Google APAC in Singapore even if its employees were (partly) instrumental in generating that revenue.
Reuters notes that Google “[justifies] booking large revenue and profits in Singapore as they usually run main business functions such as finance and operations, hold intellectual property rights there or base regional executives in the city state.”
Issues with national tax authorities
This practice, and other practices, has landed Google into trouble with multiple tax authorities in the past.
In Indonesia, Google faced a US$ 400 million tax bill over 2016. They came to an agreement with the Indonesian authorities for an undisclosed amount.
Last December, Google Australia had to pay US$ 481.5 million in tax for revenue generated from 2010 until 2018.
Several Google-linked companies in China were investigated for tax avoidance in 2011. And Thailand’s Revenue Department created a working group to discuss taxation of internet and technology companies back in 2016.
While Asian countries continue to generate increased revenue for Google, paying tax in Asian countries still lags. So, governments in Asia are stepping up their efforts to tax Google. This will be discussed in the last part of this series.
Article by Anrike Visser.
Editing Laura Alice Martin.
Illustration by Kristine Carpio.
This article was developed with the support of Finance Uncovered.
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