UK lawmakers demand comprehensive inquiry into Google’s tax practices

After concluding that the Google's tax arrangements were "deeply unconvincing", a committee of UK's parliamentarians said in a report the internet giant's own account of its operations made "absolutely no sense", and have demanded that HM Revenue & Customs (HMRC) should conduct a thorough inquiry into the company's tax affairs.

According to Margaret Hodge, the committee's chair, the only way for Google to repair its damaged reputation was to arrange to pay a fair share of tax in the countries where it earned profits. She added Google had "brazenly" argued that its tax affairs were defensible and lawful.

The company had told Hodge's committee that its advertising sales took place in Ireland, rather than the UK, an argument, she described as "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".

Concluding that Google's employees merely processed the bills, Hodge said that Google adopted a "highly contrived tax arrangement that has no purpose other than to enable the company to avoid UK corporation tax".

In the report, her committee, also expressed surprise that the firm had not been earlier challenged by the tax authorities over its arrangements.

Google, though remained unrepentant and  accused the committee of failing to understand how tax laws operated, maintaining it operated within existing rules (See: Under fire for evading UK taxes, Google's Schmidt seeks to blame system).

According to the committee, while the UK was a key market for Google, generating $18 billion revenue between 2006 and 2011, it paid only $16 million in corporation taxes over the same period.

The committee pointed out that while Google defended its tax position, claiming that its sales of advertising space to UK clients took place in Ireland, the explanation was ''deeply unconvincing on the basis of evidence''. (See: Media buyers say they dealt with UK ad sales teams).

It said from the testimony of whistleblowers, including ex-employees, it was clear that Google's UK staff carried out the substance of work leading to contracts with major UK clients.

Describing the arrangement as an ''elaborate corporate construct'' it said it had undermined confidence in the effectiveness of HMRC in collecting tax due.

Speaking as the report was published, Hodge said, Google brazenly argued before the committee that its tax arrangements in the UK were defensible and lawful, but they had no purpose other than to enable the company to avoid UK corporation tax.

She said, Google's reputation had been damaged and the damage would not be repaired until the company arranged to pay its fair share of tax in the country where it earned the profits from the business it conducted.