The parliamentary Public Accounts Committee has slammed the way Google avoids paying corporation tax in the UK, and has called on the government to close tax loopholes the internet company has exploited.
For a report just published the Committee took evidence from Matt Brittin of Google, John Dixon of Ernst & Young and from HM Revenue and Customs, where it examined tax avoidance by large companies.
Margaret Hodge MP, chair of the Committee said: “Google generates enormous profits in the UK. But despite an $18 billion turnover between 2006 and 2011 it paid the equivalent of just $16 million in taxes to the UK government.
“Google brazenly argued before this committee that its tax arrangements in the UK are defensible and lawful. It claimed that its advertising sales take place in Ireland, not in the UK."
Hodge said: “This argument is deeply unconvincing and has been undermined by information from whistleblowers, including ex-employees of Google, who told us that UK based staff are engaged in selling. The staff in Ireland simply process the bills. Google also conceded that its engineers in the UK are contributing to product development.
“The company’s highly contrived tax arrangement has no purpose other than to enable the company to avoid UK corporation tax."
Hodge said Google's reputation had been "damaged" as a result, and that the damage will not be repaired until the company "arranges to pay its fair share of tax in the country where it earns the profits from the business it conducts".
She added that confidence in HMRC had also "been weakened". She said: "It is extraordinary that the department did not challenge Google over the complete mismatch between the company’s supposed structure and the substance of its activities."
Hodge said the government needed "to act to strengthen HMRC and to simplify the tax code so that there are fewer loopholes".
A Google spokesman said: "It's clear from this report that the Public Accounts Committee wants to see international companies paying more tax where their customers are located, but that's not how the rules operate today."
Google maintains it broke no tax rules and did not break any UK laws in the way it presented its accounts.
An HMRC spokesman said the department simply enforced the tax rules that existed, and that it was up to politicians to make the laws and rules that would dictate how much firms had to pay.
In the last week UK companies Thames Water and Vodafone were slammed from various quarters for paying no or little corporation tax in recent years. The two firms said they had instead ploughed profits back into their business to improve services, in line with tax laws they were allowed to exploit.