THE UK TAX AFFAIRS of global search engine Google should be "fully investigated" by HM Revenue & Customs, according to MPs in the Public Accounts Committee.
Google maintains it complies with UK tax law and that the role of its London team is to drum up business, before deals are concluded by their Irish counterparts, allowing it to book the revenue in Dublin where to corporate tax rate is 12.5%.
Corporation tax is payable on profits, not revenues, and the current debate around taxing multinationals hinges on companies' ability to shift profits between countries in order to achieve favourable tax conditions, with little clear relationship to where the sales are generated.
But in a report released today, the committee said Google's claims are "deeply unconvincing", adding there is "clear evidence that the vast majority of sales take place in the UK".
The company generated $18bn (£11.5bn) in revenue from the UK between 2006 and 2011 and paid just $16m (£10m) in UK corporate taxes in the same period as its profits were channelled through Ireland.
In May, it emerged Google's corporate website claims sales teams are based in London, and advertises jobs for London-based sales staff, whose duties include "negotiating deals," closing "strategic and revenue deals" and achieving "quarterly sales quotas".
The profiles of about 150 London-based employees on corporate social networking site LinkedIn said they were involved in drawing up sales strategy, managing sales teams, closing deals and other sales work. Despite these developments, Google denied it had previously misled the committee in saying sales go through Ireland.
In today's report, the committee said it "is quite clear... that sales to UK clients are the primary purpose, responsibility and result of its UK operation, and that the processing of sales through Google Ireland has no purpose other than to avoid UK corporation tax".
It went on to recommend Google establishes a corporate structure ensuring "it pays tax where it generates profit" if it is to restore public confidence.
It also stated HMRC "has not been sufficiently challenging of multinationals' manifestly artificial tax structures", adding it is "extraordinary that it [HMRC] has not been more challenging of Google's corporate arrangements given the overwhelming disparity between where profit is generated and where tax is paid".
Appearing before the committee in May, HMRC chief executive Lin Homer had told MPs the taxman "collects the tax due under law, not what the PAC wants it to collect. It's a matter for the application of expert tax knowledge, and that's something we [HMRC] do rather better than the select committee".
Among the committee's other recommendations was a call for "an international commitment to improve tax transparency", specifically the "quality and credibility of public information about companies [sic] tax affairs".
In response to the report, Google said in a statement: "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."
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