Google's 'contrived' tax arrangements must be 'fully investigated' by HMRC

Public Accounts Committee launches scathing attack on web giant's UK tax practices

MPs have accused Google of operating a "contrived" tax arrangement that is solely used to enable the multinational firm to avoid paying as much tax as possible in the UK.

The comments came as the Public Accounts Committee (PAC) published a report on Google's tax avoidance, following several sessions during which it heard evidence from HMRC, Ernst & Young and Google itself. The committee also suggests that confidence in HMRC has been undermined by the whole affair.

Google posted $18bn in UK turnover between 2006 and 2011 but paid only the equivalent of $16m in taxes during that time. Google previously told the PAC that its advertising and sales activities all take place in Ireland, but evidence given to the committee suggests that it does have sales staff based in the UK, which would make it eligible for higher corporation taxes.

"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 Margaret Hodge MP, chair of the PAC.

"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 company's highly contrived tax arrangement has no purpose other than to enable the company to avoid UK corporation tax."

Hodge believes Google's "aggressive tax avoidance" has damaged its reputation, which won't be repaired until the firm pays its "fair share" of tax.

The chair of the committee also believes the Google affair - along with other high-profile tax avoidance cases including Amazon and Starbucks - has damaged the reputation of HMRC and that the government must act to improve its operation.

"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.

"The government clearly needs to act to strengthen HMRC and to simplify the tax code so that there are fewer loopholes," she continued, adding: "The government should also consider greater transparency so that the public knows whether companies are paying a fair share."