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Google executive chairman Eric Schmidt has dismissed criticism over how little corporation tax his company pays, saying it's just capitalism.

Schmidt is "very proud" of the corporate structure Google set up to divert profits made in European countries, such as the UK, to its firms in the low-tax havens of Ireland and The Netherlands, thus minimising its tax bill.

“It’s called capitalism. We are proudly capitalistic. I’m not confused about this."

Google was lambasted by MPs for its tax chicanery, which is not illegal but has been described as "immoral".

US firms Starbucks and Amazon were also called in front of the same panel of MPs, sitting on the Public Accounts Select Committee; the coffee chain has since caved to political and consumer pressure and agreed to hand over some more dosh.

Starbucks, which collect £3bn in revenue from the UK last year, said it will pay an extra £20m in corporation tax over the next two years. MP Stephen Williams, co-chairman of the Liberal Democrat Treasury Parliamentary Policy Committee, described that offer as a "joke".

“It is extraordinary. People have been joking that some of these multinationals seem to think that paying tax is voluntary. Well, Starbucks have just confirmed the joke really," he said. "Tax is something that is a legal obligation that you should pay. It’s not a charitable donation in order to gain brand value."

In the US, pressure group Consumer Watchdog has written to the Senate Finance Committee urging it to call both Google CEO Larry Page and executive chairman Eric Schmidt in to "explain their company’s flagrant abuse of the tax code to the detriment of all who play fairly".

"Using dubious tactics dubbed the 'Double Irish' and the 'Dutch Sandwich', Google apparently was able to pay only 3.2 per cent in tax on its overseas profits in 2011 even though most of its sales were in countries with tax rates from 26 to 34 per cent," the group's privacy project director John Simpson said in the letter.

"Governments in Europe, many of which have been targets of Google’s morally bankrupt tax polices, 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.

"It will be necessary to work with other countries’ tax authorities and to amend our tax code to put an end to egregious loopholes that allow cynical exploitation by this generation’s Robber Barons.

"What makes Google’s activities so reprehensible is its hypocritical assertion of its corporate motto, 'Don’t Be Evil'," he added.

Documents filed in The Netherlands show that the UK is a big market for Google in Europe: it was worth $4.1bn in sales last year. But the company only paid £6m in corporation tax, which is taken as a percentage of profits rather than revenue, in Britain.

When called in front of the Public Accounts Committee, Google veep for sales and operations in Northern and Central Europe Matt Brittin tried to claim that all of the firm's profits went to the US. He said that since all the innovation was happening in California, it was only fair that all the profit went there too.

But Brittin was caught out when he admitted that intellectual property rights were held in Bermuda and so some European money was going to that tax haven, not back to the US. Google swerved paying about $2bn in worldwide income taxes last year by moving $9.8bn to its Bermuda subsidiary. ®

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