For the past year, the Securities and Exchange Commission has been investigating how Google accounted for its income taxes, according to the online search giant’s 2006 annual report.

Nearly a year ago, the SEC sent Google a comment letter with questions about the company’s public filings, including its provision for interim period effective income tax rates. Through the remainder of the year, the regulator and the company continued to exchange comment letters.

In its annual report, issued last week, Google said that the SEC is continuing to review the company’s January response to the last of the follow-up SEC letters, which the company received on Dec. 21.

The SEC original letter came a few weeks after Google announced to investors that its tax rate had climbed unexpectedly in the final quarter of 2005 -- an event that negatively impacted its profits and came as a surprise after forecasts Google had made just a few weeks earlier. At the time, Google blamed the higher tax charges on a shift in its business mix, which had seen more of its investment spending moving to faster-growing international markets and away from the United States.

“We believe that we properly account for our income taxes,” Google said, in its annual report. “We will continue to work to resolve these comments with the SEC.”

In its most recent filing with the SEC, Google also added new cautionary language that said its privacy practices risked falling foul of state and national data protection laws. A staple of chief executive Eric Schmidt’s public speeches is that Google sees government intrusion, as opposed to accidental public data disclosures, as the greatest threat to online privacy.


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