Eric Schmidt defends Google’s tiny tax bill

Google’s executive chairman Eric Schmidt has defended his company’s tax minimisation strategies in an article in Britain’s Observer newspaper, following revelations the tech giant paid only £6 million ($9.25 million) in corporation tax off around £3.2 billion ($4.9 billion) in UK revenues.

“When a company only operates in one country, it’s obvious where its profits are generated and thus where its taxes should be paid. But for multinational companies with a global presence, it’s much more complicated,” Schmidt writes.

“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 $US2 billion in corporate income taxes to the US government in 2012.”

In the article, Schmidt’s key points are that a company’s profits (rather than revenues) should be taxed, that politicians ultimately set the rules, concedes the need for international tax law needs to be reformed and that many tech companies reinvest their profits in research and development.

Schmidt also warns that not all governments will benefit from an OECD paper on international tax reform, which is due in July.

“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,” Schmidt writes.

According to Reuters, Schmidt is on British Prime Minister David Cameron’s Business Advisory Group, with the Google executive set to meet Cameron later today.

Schmidt’s comments came after UK Opposition Leader Ed Miliband recently slammed the search and mobile giant over the low amount of tax is pays.

“Now, what is the politicians’ responsibility: Change the law. But it is also to talk about the kind of society we want to create and what the responsibilities of a company like Google are. I don’t think they are living up to their responsibilities at the moment,” Miliband said.

As SmartCompany reported last year, Google’s Australian subsidiary paid just $74,000 in tax on revenues of $201 million.

Google Australia’s sales and marketing operations are provided through Google’s subsidiaries in Ireland and the Asia-Pacific region, where company tax rates are lower.

As a result of the arrangements, Google is able to claim an on paper loss for its Australian division.

Meanwhile, Apple’s tax minimisation strategies see it reportedly pay a tax rate of just 9.8% in the US and just 1.9% or $US713 million in tax on its earnings outside the US of $36.8 billion.

Federal Assistant Treasurer David Bradbury has criticised the tech giants for their tax minimisation programs, while a number of tech giants have also been asked to defend accusations of price gouging.

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