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Google is not about to turn down tax savings, says Schmidt

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Google’s chairman Eric Schmidt has defended the group’s structure and said its tax planning was based on incentives offered by governments, after Bloomberg reported that, according to an analysis of recent filings, Google ‘avoided about $2bn in worldwide income taxes in 2011 by shifting $9.8bn in revenues into a Bermuda shell company, almost double the total from three years before’.

Bloomberg reported on Wednesday that Schmidt said the company’s efforts around taxes were legal: ‘We pay lots of taxes; we pay them in the legally prescribed ways. 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 … The company isn’t about to turn down big savings in taxes,’ he said.

The report continued: ‘It’s called capitalism,’ he said. ‘We are proudly capitalistic. I’m not confused about this.’

Responding to Schmidt’s comments, UK business secretary Vince Cable told journalists that governments had been ‘very much behind the curve’. He called for more international co-operation ‘to clamp down on multinationals shifting profits to low-tax countries’, The Guardian reported, and said states should co-operate more on tackling corporations' tax arrangements.

Cable added: ‘There is scope for a lot more of that kind of work and the G8 [group of nations] may well focus on how to do that more extensively.’

Bloomberg had reported on Monday: ‘By legally funneling profits from overseas subsidiaries into Bermuda, which doesn’t have a corporate income tax, Google cut its overall tax rate almost in half. The amount moved to Bermuda is equivalent to about 80% of Google’s total pre-tax profit in 2011 …

‘The increase in Google’s revenues routed to Bermuda, disclosed in a Nov 21 filing by a subsidiary in the Netherlands, could fuel the outrage spreading across Europe and in the US over corporate tax dodging. Governments in France, the UK, Italy and Australia are probing Google’s tax avoidance as they seek to boost revenue during economic doldrums.’

The report quoted Google as saying it complies with all tax rules, and its investment in various European countries helps their economies: ‘In the UK “we also employ over 2,000 people, help hundreds of thousands of businesses to grow online, and invest millions supporting new tech businesses in East London,” the Mountain View, California-based company said in a statement.’

As Tax Journal reported on 28 November, Google’s vice president in Europe Northern and Central, Matt Brittin, told Channel 4 News that ‘the tax we pay is the right amount of tax as defined by the systems that are set up by politicians’. Responding to criticism levelled at Google by Margaret Hodge, chairman of the Commons public accounts committee, Brittin said he was not ‘immoral’, and was ‘proud of how we operate’.