Google’s Eric Schmidt faces the tax question

It is not often a multinational corporation in the eye of the storm holds an event in which the storm is set to intensify.

Whatever you think of Google’s tax affairs they were very open today. In fact they set the stage and gave us the story.

Whenever they invited Ed Miliband to be their keynote speaker they would have known all along that he was likely to tackle them on tax. And given the rumblings in the public accounts committee recently there was no escaping it.

Ed Miliband didn’t quite give it both barrels, but he was blunt. He was disappointed in the way Google structures itself to minimise UK corporation tax and wanted to change the law to make them pay more. He would unilaterally make Britain a tax-transparent nation (although that wouldn’t in itself raise any more tax).

And the transfer pricing system that enables Google to send vast amounts of money to Bermuda needed to change, but that would have to be done with international cooperation. And he was so disappointed that Eric Schmidt from Google wasn’t in the room at the time he mentioned it two or three times.

Google’s position seems to me to be evolving. Frustrated with being attacked when it isn’t breaking the law, Google is now encouraging debate about tax and the international process to get going.

It seems to want Britain and the rest of the world to agree to change tax law to something that will get critics off Google’s back.

But at the heart of this debate is whether Google is a passive player in this process or one making active choices to legally avoid tax.

Critics, including Ed Miliband, say Google is taking a moral choice in the way it is structured. Google says it is simply structured in an efficient, legal way for shareholders to maximise profits, and points to all the investment and employment it pumps in around the globe.

That means Google in London argues it simply does marketing, not actual sales ,which are handled in lower tax Ireland. It in turn sends vast amounts of licensing fees abroad under the argument that Ireland doesn’t own the intellectual property it is selling.

The economic activity, they argue, takes place where Google is engineered in America, not where it is sold. Except instead of Google in America the licensing money is sent to Google in Bermuda where it waits to be brought “onshore” at some point in the future. Until then a large chunk of money from British advertisers isn’t being taxed in Britain or America.

The Google Chairman Eric Schmidt is getting well used to this debate now, but until recently took a pretty uncompromising view, describing Google’s tax structure as “capitalism”.

I was due to go to Google’s Big Tent conference to interview him with his co-author Jared Cohen about The New Digital Age, a fascinating book about how the world needs to adapt to cope with massive technological change.

When I told my seven-year-old this morning that I was interviewing the boss of Google today she said: “Can you ask him how he knows the answer to everything?”. Did he have the answer on tax? You decide.

Follow @krishgm on Twitter.