British lawmakers have urged HMRC to "fully investigate" Google over its tax affairs, after whistleblowers raised doubt over the internet search giant's claim that it makes almost no sales in the UK.
In a new report, the Public Accounts Committee (PAC) has said the Government must give HMRC more resources to fight tax avoidance, with chairman Margaret Hodge describing Google's arguments as "brazen" and "deeply unconvincing."
Hodge was referring to two separate appearances made by Google to the PAC. On both occasions, Google gave an impassioned defence of its UK tax affairs, insisting it sticks to the law of the land.
Many had criticised Google for paying just $16m (£10m; €12m) in UK corporation tax between 2006 and 2011, on revenues of €16bn. Defending the company against these criticisms, vice-president Matt Brittin told the PAC that 99% of companies spending money advertising with the firm have no contact with the UK.
"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," said Hodge.
"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 at this second hearing 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. Google's reputation has been damaged by these revelations of aggressive tax avoidance."
Hodge added that the damage will not be fixed until Google "arranges to pay its fair share of tax".
Google: rules are different now
HMRC was also criticised by the PAC report for not doing enough to probe and clamp down on the tax arrangements of big multinationals such as Google.
"Confidence in HMRC has also been weakened. 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," said Hodge.
To prevent future instances of tax avoidance, the report called for the simplication of the tax system and the closure of loopholes - a demand which was welcomed by Google.
A company 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.
"We welcome the call to make the current system simpler and more transparent."
MPs on the PAC welcomed the government's commitment to put aggressive tax avoidance at the top of the G8 agenda during its presidency in 2013. Prime Minister David Cameron has said he wants to get agreement on country-by-country reporting of tax payments in company accounts.