Parliament’s powerful spending watchdog today formally castigates the internet giant Google for a “brazen” and “unconvincing” attempt to avoid paying its fair share of UK tax.

In a damming report, the Public Accounts Committee (PAC) called on HM Revenue & Customs to “fully investigate” the company, after concluding it had used “highly contrived” tax arrangements with the sole purpose of avoiding corporation tax on its multibillion-pound UK revenues.

Google, however, was unrepentant, accusing the committee of failing to understand how tax laws operate, and insisting again that it operated within existing rules.

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The PAC said that while the UK was a key market for Google, generating $18bn revenue between 2006 and 2011, it had paid just $16m in corporation taxes over the same period.

The committee said that while Google defended its tax position by claiming that its sales of advertising space to UK clients took place in Ireland, the explanation was “deeply unconvincing on the basis of evidence”.

It pointed to the testimony of whistleblowers, including ex-employees, which demonstrated that Google’s UK staff carried out the substance of work leading to contracts with major UK clients. It described the arrangement as an “elaborate corporate construct” that had undermined confidence in the effectiveness of HMRC in collecting tax due.

It added that any “common sense reading of HMRC’s own guidance and tests” would suggest that HMRC should have “vigorously questioned” Google’s claim that it is acting lawfully. HMRC is unable to comment on the tax affairs of individual companies.

The cross-party committee also warned that the UK’s big accountancy firms had damaged their reputations by helping clients avoid tax, calling on them to recognise “the public mood on tax avoidance has changed”.

Speaking as the report was published, Margaret Hodge, the committee’s chair, said: “Google brazenly argued before this committee that its tax arrangements in the UK are defensible and lawful. [But they have] no purpose other than to enable the company to avoid UK corporation tax.

“Google’s reputation has been damaged... That damage will not be repaired until the company arranges to pay its fair share of tax in the country where it earns the profits from the business it conducts.”

Ms Hodge said big accountancy firms were also culpable: “This committee has vigorously condemned the activities of the big UK accountancy firms in helping their clients find loopholes in legislation and establish highly artificial tax structures... The time has come for them to advise their clients responsibly.”

She said she welcomed efforts by the Government to use Britain’s presidency of the G8 to promote tackling of aggressive tax avoidance.

A Google spokesman said: “Google complies with all the tax rules in the UK, and it is the politicians who make those rules. The PAC 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.”

Google gives £1m to help child abuse watchdog

Following revelations that Google contributed just £20,000 a year to one charity’s fight against internet child abuse images in Britain, the internet giant has increased its donation to £1m over the next four years.

Google’s donation to the Internet Watch Foundation (IWF), a Cambridge charity that seeks to police illegal images online, came after it was exposed for donating the equivalent of profits made in 90 seconds to IWF. “We are experts at doing this and, like any organisation, can do more with more resources,” said IWF chief executive Susie Hargreaves.

The funding will see IWF increase its staff to nine full-time and one part-time analysts.

Sam Masters