We pay £6m tax on £2.6bn UK profits, but that's OK because we help start-ups: Google boss Eric Schmidt under fire over comments on corporate tax

Senior MPs called on David Cameron to consider stripping the boss of Google from his role as a government adviser tonight after he suggested that his company’s contribution to the British economy was more important than paying its fair share of tax.

Politicians from all three parties rounded on Google’s executive chairman, Eric Schmidt, after he defended its use of loopholes to minimise its UK tax bill. He insisted that Google would comply only with the letter of the law – despite paying only £6m of taxes on £2.6bn of revenue generated in the UK in 2011. Google uses anomalies in international law to move profits into low-tax jurisdictions even if they have been generated by business carried out in Britain. Chancellor George Osborne has made tackling the practice a priority for Britain’s chairmanship of the G8.

But in an interview with the BBC, Mr Schmidt defended his company’s practice, suggesting that its contribution to the UK economy was more important than the tax it paid to the Exchequer. “We are investing heavily in Britain,” he said. “We power literally billions of pounds of start-ups through advertising networks and so forth, and we’re a key part of the electronic commerce expansion of Britain, which is driving a lot of economic growth for the country. So from our perspective, I think, you have to look at it in a totality.

“The people we employ in Britain are certainly paying British taxes, and more importantly, they’re British citizens and they’re driving a lot of GDP. I think the most important thing to say about our taxes is that we fully comply with the law, and well, obviously, should the law change we’ll comply with that as well.”

His comments were condemned by MPs, who pointed out that much of the investment in broadband internet infrastructure that had allowed Google to grow had been paid for by taxpayers.

Margaret Hodge, the chairman of the powerful Commons Public Accounts Committee (PAC), which carried out an investigation into the tax practices of multinational companies, said the Government should consider whether Mr Schmidt was an appropriate person to remain on its Business Advisory Group if Google maintained its tax position. “I think we should be careful who we talk to, and I think if people want to have the voice of Government, they have a responsibility to pay their fair share,” she said.

A government source also questioned Mr Schmidt’s position, claiming Google was “not really investing very much in Britain” and that the company had a “disproportionate influence” on Mr Cameron. “It’s a bit like The Wizard of Oz,” the source said. “From the outside, they appear terribly important and powerful but, when you look closely at what they are actually investing in Britain, it is pretty insubstantial.”

Fiona Mactaggart, another member of the PAC, said that while she would need to look closely at Mr Schmidt’s exact position as a government adviser, the company’s privileged position did raise questions. “Given he has not made the moral leap to recognise that Google should pay its fair share of taxes in the UK, it makes you think maybe he is not well-equipped to do that role,” she said.

Charlie Elphicke, the Conservative MP for Dover, said he was “surprised” by Mr Schmidt’s comments. “The key point of corporation tax is that businesses that make profits in the UK pay a fair share of that in tax,” he said. “Mr Schmidt says Britain has been a good market for his company. If that is the case, why has it paid such little tax?”

Ms Hodge added that the position of MPs remained consistent. “These global companies should pay a fair rate of tax related to the economic turnover in this country and the profits they derive from that turnover,” she said. “Google is clearly not doing that.”

She objected to the idea that multinationals already make a sufficient contribution, saying: “I really get fed up when these global corporations talk about how they are contributing in other ways. So, of course, if they employ people, those people pay their PAYE, they pay their national insurance, and just because they pay one tax doesn’t mean that they should get away with not paying another.”

A spokesperson for the Treasury said that, while the Government was committed to creating the “most competitive corporate tax system in the G20”, this commitment went “hand in hand” with the need for strong international standards to make sure global companies “pay the taxes they owe”.