Schmidt: Don't like our tiny tax bills? Google this... 'Change the law'

Ad biz chairman says he can't wait for reform

Google chief Eric Schmidt has once more defended his advertising giant for its pitiful UK tax bills: the search supremo said his biz abides by the rules, and claims he can't wait for the Organisation for Economic Co-operation and Development to reform those rules.

Schmidt said in an op-ed for The Observer that Google "has always aspired to do the right thing" and it was right for corporate taxes to be a "hot topic" when regular folks were having to tighten their belts.

Nevertheless, he insisted Google wasn't doing anything wrong. He said that taxes were paid on profits, not revenues, and that profits should be attributed to "the country where a company conducts the economic activity, and takes the risk, that generates its profits – not where products are consumed".

Schmidt added: "Most of Google's engineers are based in the US and that's where much of our product development takes place. So we pay more taxes in the US than in any other country – around $2bn in corporate income taxes to the US government in 2012."

He didn't mention anything about the portion of profits going to Google's subsidiary in Bermuda where some patents are held on the stuff the company is developing in the States.

But he did say that it was the politicians, not the companies, who set the rules and they should be standing by the poor, put-upon firms.

"When legislators are doing the lobbying and companies are articulating the law as it stands, it's a confusing spectacle for everyone," he said.

"Our hope is to move the debate forward, with everyone engaged constructively in developing a clearer, simpler system – one in which companies that abide by the law know that the politicians who devised the rules are willing to defend and commend them."

He admitted that international tax law "could almost certainly benefit from reform". But of course that reform shouldn't necessarily result in higher taxes.

"It's tempting for every government to assume that they will benefit if and when the current structure changes. But in reality, it's probably only a significant increase in corporation taxes globally that would make every country a "winner" – and the consequences of that would likely be less innovation, less growth and less job creation," he said.

Schmidt was responding to UK MPs' pronouncement that the firm does "do evil", despite its motto, when it engages in complex tax avoidance schemes, taking legal advantage of current loopholes. The UK's Public Accounts Committee interviewed the firm for the second time last week, using whistleblowers' evidence and documents to argue the point that staff in the UK were engaging in full sales, not sales support, and therefore economic activity was taking place in Blighty.

The legal nuances can be split down to the finest of hairs, as Google's auditor Ernst & Young pointed out in the hearing (talking about a "hypothetical firm"), proving that having employees who close sales in the UK might still not require a company to report profits in the UK.

However, Google veep Matt Brittin insisted in his first testimony to the committee that Google's staff in Britain were more like support workers for the firm's European HQ in Ireland than sales folk. This means that any proof that the support workers are engaged in sales would show evasiveness from the ad giant at the very least.

You're evil and I've got 100,000 emails here to prove it

One of the whistleblowers came forward to The Sunday Times (paywall) yesterday and claimed that British staff were involved in a "concocted scheme" to avoid sales being booked in the country.

Barney Jones, who worked for Google between 2002 and 2006, told the paper that he had attended meetings where London workers had closed deals with eBay, Kelkoo and Lloyds TSB. Clients were sold deals by employees in Blighty, who sent out the contracts and got back signed documents, but "technically booked" through Dublin, he claimed.

“[Google] uses a concocted scheme to avoid tax. It’s a smoke-screen to distort where the substance of its economic activity is really taking place,” Jones said, adding that he had more than 100,000 emails and documents to back up his claims.

Meanwhile, British Prime Minister David Cameron, who has promised to use the country's leadership of the G8 to push for tax reform, has today written to crown dependencies like Bermuda and the British Virgin Islands about "getting the UK house in order".

Cameron said he wanted to fight the "scourge of tax evasion and aggressive tax avoidance", but he also kept his options open by talking about how he believes "passionately in lower taxes as a vital driver of growth and prosperity for all".

"I respect your right to be lower tax jurisdictions," he said.

"But lower taxes are only sustainable if what is owed is actually paid – and if the rules to achieve this are set and enforced fairly to create a level playing field right across the world. There is no point in dealing with tax evasion in one country if the problem is simply displaced to another."

The PM said he wanted more transparency and more sharing of tax information.

"I very much welcome the commitments you have made to automatic tax information exchange, both on a bilateral and multilateral basis, which will help us to reach our goal of setting a global standard in tax transparency," he said.

"But dealing with tax evasion is not just about exchanging information. It is also about improving the quality and accuracy of that information. Put simply, that means we need to know who really owns and controls each and every company," he added.

Cameron is due to meet with Eric Schmidt and other multinational business bosses from the likes of Vodafone and John Lewis today to get their advice on how he should be taxing them. ®