The Public Accounts Committee (PAC) is calling for a full investigation of Google’s alleged tax evasion practices in the UK.
The call comes after former Google employees told the PAC that UK-based staff members are engaged in selling advertising.
The allegations undermine Google’s defence of its tax arrangements, which are based on the company’s claim that advertising sales take place in Ireland, not in the UK.
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The PAC has called on HM Revenue & Customs to investigate Google, which generated about £11.5bn in revenue in the UK between 2006 and 2011, yet paid only £10m in corporation tax in that period.
Google has insisted that it complies fully with UK tax rules.
Because companies pay corporation tax on their profits, not their sales, Google has been accused of moving its profits to Ireland to avoid paying the higher rate of tax in the UK where the sales are made.
The PAC’s latest report indicates that it wants to see multinational companies paying more tax where their customers are located.
Matt Brittin, vice-president of Northern Europe for Google, has appeared before the PAC twice, but maintained that no one in the UK could execute transactions, despite the fact that Google employed sales staff in the UK.
He claimed Google sold very little advertising from the UK, as this all went through the company’s Dublin office.
Read more on Google and tax issues
- Google is tax law compliant and key to UK growth, says Eric Schmidt
- Google pays just £6m in tax on £395m UK revenue
- Google comes under fire for UK tax avoidance
- UK government to crack down on tax-avoiding suppliers
- Government wants suppliers to reveal UK taxes
- Government introduces new rules to prevent tax-avoidance
PAC chair Margaret Hodge said despite Google’s argument before the committee that its tax arrangements are legal, the company's “highly contrived” tax arrangement had no purpose other than to enable the company to avoid UK corporation tax.
Google is one of several multinationals that have come under fire over tax payments.
Amazon made over £3.3bn in sales in 2011, but paid no corporation tax, due to its UK business being based in Luxembourg. Starbucks has paid just £8.6m in its 14 years of trading in the UK.
The PAC has now called on the government to strengthen HMRC and to simplify the tax code so that there are fewer loopholes.
The UK is hosting next week's G8 summit in Northern Ireland, and has put tax and transparency at the heart of the agenda, according to the BBC.
In a statement, a Treasury spokesman said: "This government is committed to creating the most competitive corporate tax system in the G20, but this goes hand-in-hand with our call for strong international standards to make sure that global companies, like anyone else, pay the taxes they owe."