Data protection laws may hurt Google

Eric Auchard

MOUNTAIN VIEW, Calif. : Google Inc. disclosed in its 2006 annual report on Thursday that the U.S. Securities and Exchange Commission nearly a year ago had called into question how it accounted for income taxes.

In its annual 10K securities filing, Google said it received an initial letter from the SEC on March 16, 2006, on various issues and subsequently corresponded with the agency as recently as January 2007. The tax dispute remains unresolved.

"We believe that we properly account for our income taxes. We will continue to work to resolve these comments with the SEC," the Web search leader said in the annual filing.

It also warned in the annual report how a growing number of legislative proposals for consumer data protection in the U.S. and other countries could hurt its business if enacted.

In a filing with the U.S. Securities and Exchange Commission, the Web search leader added cautionary language that said its privacy practices risked falling foul of U.S., European or other state or national data protection laws.

"It is possible that these laws may be interpreted and applied in a manner that is inconsistent with our data practices," the Google annual report said.

"In addition to the possibility of fines, this could result in an order requiring that we change our data practices, which could have a material effect on our business," it said. This could drive up Google's costs or force it to change some business practices, the filing said.

"As nearly all of our products and services are Web-based, the amount of data we store for our users on our servers (including personal information) has been increasing," it said.

Chief executive Eric Schmidt has warned in speeches in recent months that Google sees potential government intrusions rather than accidental public disclosures of data as the greatest threat to its customers' online privacy.

Another note of caution in the annual report, where companies are required by law to inform investors of business risks, regards its ability to generate revenue from services where it has invested considerable resources. These include YouTube, Gmail and its social network site Orkut, it said.

© Reuters