Media playback is unsupported on your device Media caption Matt Brittin, Google: "No money changes hands"

The internet giant Google has been challenged by MPs over the way it reports its income for tax.

The chair of the Public Accounts Committee, Margaret Hodge, said whistleblowers had told her that Google had sold advertising within the UK and invoiced customers in the UK.

Google had earlier said that UK customers paid Google in Ireland.

"No one in the UK can execute transactions," said Google's head of sales in Northern Europe, Matt Brittin.

"No money changes hands," he said, despite the fact that he employed sales staff in Britain.

But Ms Hodge said: "It was quite clear from all that documentation that the entire trading process and sales process took place in the UK."

She read from the official guide to parliamentary procedure, Erskine May: "A person prevaricating or giving false evidence can be considered to be in contempt of the House."

Media playback is unsupported on your device Media caption Margaret Hodge MP: "Google do not pay their fair amount of tax"

And she said: "We will continue to have whistleblowers until we get to the bottom of the truth about all this."

Google's sales in the UK are worth £3.2bn, but most are routed through Dublin. In 2011 it paid £6m in UK corporation tax.

Google is one of several multinational companies that have been strongly criticised in recent months for organising their tax affairs in ways that minimise the amounts they pay in the UK.

Amongst them is online retailer Amazon, whose UK subsidiary paid £2.4m in corporate taxes last year, despite making sales of £4.3bn, and Starbucks, which has also gone to great lengths to minimise its tax bills, though it has been pressured to agree to pay more than it used to.

All three, as well as others, have previously appeared before the Public Accounts Committee, and they have attracted much criticism in spite of their insistence that they are operating within the law.

Prime Minister David Cameron has described such "aggressive" tax avoidance as "immoral", while the leader of the Labour party, Ed Miliband, sees it as "evidence of a culture of corporate irresponsibility among certain firms which is totally unacceptable".

European headquarters

Media playback is unsupported on your device Media caption Jim Harra, HMRC: David Cameron's priority for Britain's G8 presidency is to have the international tax rules reviewed'

Mr Brittin maintained that any advertiser in Europe would deal directly with Google in Dublin, which employs some 3,000 staff.

"When we came to Europe, we set up Dublin as our European headquarters," said Mr Brittin

"We wanted to be able to contract with customers across the whole of Europe, not just the UK.

"Any customer that spends with us, they have to buy from Ireland, because that's where the intellectual property sits."

Regulatory reforms needed

HMRC's director general for business tax, Jim Harra, would like to see the system changed.

"Corporate tax affairs are operated by an international framework that the UK and other countries are subject to," he said.

"That international framework has not kept up with changes in the economy, particularly in the digital economy. That affects companies like Google and Amazon.

"This, he said, had enabled companies to place their various activities in jurisdictions with favourable taxation systems, and thus they are able to reduce their tax burdens.

"Those international rules need to be looked at," he said.