Google and Tax: How To Los Friends And Alienate People

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In an interview given yesterday to Bloomberg in New York City, Eric Schmidt, the chairman of that famous "do no evil" company, Google, said that he is "very proud" of Google's complex tax avoidance measures. "It's called a capitalsm", he said. And indeed it is, the ugly, arrogant and unacceptable face of it. By Martyn Warwick.

Back in 1973, the British Prime Minister of the time, Edward Heath, a Conservative and a man very, very sympathetic to the notion of private business and the making of profits, described the sprawling Lonrho conglomerate, which had been engaged in sanction-busting in what was then Rhodesia, as "the unpleasant and unacceptable face of capitalism."

It is a quote that has resonated down the years since then and today, at the end of 2012, it fits Google like a glove. The chairman's "in-your-face, up yours" attitude will do Google little good in the long term and further tarnish the company's already battered reputation outside of the US – and maybe even there. One can but hope.

Last week the news emerged that Google squirreled away US$9.8 billion of revenues from its international subsidiaries into a Bermudan tax haven to save itself from having to pay legitimate taxes in the countries where the sales and profits were actually made. This manoeuvre cut Google's tax liabilities by 50 per cent.

Speaking to Bloomberg, Eric Schmidt said, “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. It’s called capitalism. We are proudly capitalistic. I’m not confused about this.”

Schmidt's views went down like a lead balloon in other parts of the world. In the UK the government's Business Secretary, Vince Cable, commented, "It may well be capitalism but it’s not the job of governments to accommodate it.”

Google is making enemies at every turn with its attitude and schemes and seems to think it is a multinational corporation of such huge size, strength and riches that it can't be touched by puny national governments.That is a dangerous road to travel down, as the robber barons of yore eventually discovered. Legal prescriptions can be rewritten and they will be.

Back in the States, the pressure group Consumer Watchdog has written the Finance Committee of the Senate demanding a hearing on Google’s “global tax avoidance strategies”.The organisation's director, John Simpson, says the Finance Committee should timetable a hearing whereat Google's Chairman and CEO would be required to “testify under oath and explain their company’s apparent abuse of the tax code to the detriment of all who play fairly.”

Mr Simpson also wants the Senate to co-operate with tax authorities in other countries to “put an end to Google's exploitation of "egregious loopholes that allow cynical exploitation" by the company.

In his letter to the Senate, Mr. Simpson adds, “Governments in Europe, many of which have been targets of Google’s morally bankrupt tax policies, are actively seeking redress. But this is not a problem that only impacts other countries’ revenues.

Google’s tactics strike at the US Treasury as well, forcing the rest of us to make up for the Internet giant’s unwillingness to pay its fair share. What makes Google’s activities so reprehensible is its hypocritical assertion of its corporate motto, 'Don’t Be Evil'.”

Google likes to hold its cards close to its chest and reveal as little as possible as it can about money whilst staying on the right side of the law. Thus, in filings made last month in the Netherlands, it eventually emerged that the UK is the company's biggest market outside the US. Last year, Britain was responsible for 11 per cent of Google's total sales which were worth $4.1 billion. On this vast sum Google paid just £6 million (approximately $9 million) in Corporation Tax to the British Exchequer. That's an insult to chickenfeed

In total Google managed its affairs so that it paid tax on its overseas earnings at a rate of just 3.2 per cent. By sheltering some $10 billion in Bermudan banks Google avoided paying $2 billion in taxes in 2011. It'll be more this year.

Google's tax avoidance measures will be the subject of intense discussion between the G8 group of countries in the coming months and the company is also the subject of an investigation by the Organisation for Economic Co-operation and Development (OECD).

Britain will soon take over the leadership of the G8 and the Chancellor of the Exchequer, George Osborne, has already confirmed that he will lead an international effort to put a stop to big multinationals spiriting revenues away from the countries they were raised only to have them magically reappear in a tax haven.

He said, “We will put more resources into ensuring multi-national companies pay their proper share of taxes. With Germany and France, we have asked the OECD to take this work forward and we will make it an important priority of our G8 Presidency next year.”

Margaret Hodge, the feisty chairperson of the UK's House of Commons Public Accounts Committee, who recently had the dubious pleasure of asking Google UK's stone-faced, slippery and uncommunicative bosses about the company's tax affairs commented, “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. 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 should recognise its obligations to countries like the UK from which it derives such huge benefits, and pay proper corporation tax on the profits it makes from economic activity here. It should be ashamed, not proud, to do anything less."

The reality is that Google isn't about free market capitalism iat all, it's about multinational corporatism beholden to no nation or anything except serving itself. Well, thanks to its intransigence and arrogance it has has opened Pandora's box. Troubles will ensue. We managed without Google in the past. We can do so again.

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