Google reportedly avoided paying $2 billion in taxes last year by funneling ad sales profits through a shell corporation in Bermuda, which has no corporate income tax.
"It's called capitalism," Schmidt said in a Bloomberg article. "We are proudly capitalistic. I'm not confused about this."
"We pay lots of taxes; we pay them in the legally prescribed ways," Schmidt said, according to the article. "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."
Several methods for funneling profits offshore, including what's known as the "Dutch sandwich" and the "double Irish" because of the use of subsidiaries in those countries to funnel profits, have helped the company reduce its overall tax rate from 29 percent in 2008 to 22.2 percent in 2009, according to the article. The corporate tax rate in the U.S., combined with state taxes, is 39 percent. Google's effective U.S. tax rate is unclear.
Google's competitor, Apple, reportedly uses an even more aggressive strategy to pay an overall rate of 9.8 percent, according to the New York Times.
Google has over 10,000 employees in Mountain View and pays millions in property taxes and lease payments to the city, which owns the land its headquarters sits on.
Google was not able to immediately respond to a request for comment.