Google's Schmidt 'very proud' of tax avoidance scheme

The company's chairman has defended the complex arrangement that sees its UK profits largely funnelled to Bermuda, via Ireland and the Netherlands. 'It's called capitalism,' he said in an interview on Wednesday.
Written by David Meyer, Contributor

Google chairman Eric Schmidt has said he is proud of the company's tax structure, which has been heavily criticised by lawmakers around the world.

Eric Schmidt
Eric Schmidt has defended Google's tax arrangements in the UK. Image: Stefanie Olsen/CNET News

Google paid the UK tax authorities £6m for 2011 despite turning over £395m, in an arrangement that involves sending its proceeds to a Bermuda shell company via Ireland and the Netherlands. The firm was, alongside Amazon and Starbucks, one of the corporations that came in for a grilling by UK MPs last month over the issue of tax avoidance. A parliamentary committee subsequently described the complex avoidance schemes as "utterly immoral".

In an interview reported by Bloomberg on Wednesday, Schmidt said the company was simply engaged in "capitalism".

"I am very proud of the structure that we set up. We did it based on the incentives that the governments offered us to operate," Schmidt said. "It's called capitalism. We are proudly capitalistic. I'm not confused about this."

The Independent also reported Schmidt as saying the company was only paying the British taxman what it had to.

"To go back to shareholders and say, 'We looked at 200 countries but felt sorry for those British people so we want to [pay them more]', there is probably some law against doing that," he was quoted as saying.

The newspaper also quoted a response from Margaret Hodge, the MP who chaired the Public Account Committee that had criticised Google.

"For Eric Schmidt to say that he is 'proud' of his company's approach to paying tax is arrogant, out of touch and an insult to his customers here in the UK," Hodge said. "Ordinary people who pay their taxes unquestioningly are sick and tired of seeing hugely profitable global companies like Google use every trick in the book to get out of contributing their fair share."

Google has its international headquarters in Dublin, largely because the Irish government offers generous tax breaks. This means that Google's UK proceeds go to Ireland, along with most of the profits it makes in other countries outside the US. However, in a complex process that is nominally based on intellectual property licensing, much of that cash then goes through a Dutch holding company to a Bermuda holding company, which supposedly protects Google's intellectual property.

As the Public Accounts Committee noted in its report, all Google's non-US-derived profits go to Bermuda, so the company "may be depriving the USA of legitimate tax revenue as well as the UK".

While testifying to the committee, Google's vice president for Northern and Central Europe, Matt Brittin, justified Google's low corporation tax payments in the UK by saying that "all of the engineering work is done in California".

This came as a surprise to Google's London office, which — according to the firm's own website — is "one of Google's largest engineering operations in Europe", having been instrumental in developing "Voice Search, Local Search, Maps, TV, YouTube and core infrastructure".

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