Google was branded “devious, calculating and unethical” by MPs who accused the internet giant of deliberately subverting its motto, “don't be evil”, in order to pay less tax.
Infuriated members of the House of Commons Public Accounts Committee (PAC) lashed out at the company as one of its most senior executives insisted it was not "selling" advertising in the UK – but in low-tax Ireland instead.
The arrangement allowed Google to pay just £6m in UK corporation tax in 2011 despite generating more than £3bn in advertising revenues in this country.
"You are a company that says you do no evil," said Margaret Hodge, the committee's chairman. "I think that you do do evil. You use smoke and mirrors to avoid paying tax."
Last night, the Labour leader, Ed Miliband, increased the pressure on the company, accusing it of operating a culture of "corporate irresponsibility" and going to "extraordinary lengths" to avoid paying tax. Labour sources said Mr Miliband would be raising the issue directly with company executives when he meets them at a conference next week.
Google's head of operations in Northern Europe, Matt Brittin, had been called back to give evidence to the PAC after it emerged that Google's UK staff had effectively been selling advertising – despite claims by the company that all UK transactions took place in Ireland.
MPs told Mr Brittin that they had been contacted by whistleblowers who used to work for the company who had described the extent of sales operations in the UK. This included pay slips showing UK-based staff being paid substantial bonuses depending on their "sales" and evidence that big clients were being dealt with almost exclusively in the UK.
Customers included Amazon, BT, eBay, Argos, Halifax, British Airways, Land Rover and Lloyds TSB. Under hostile questioning, Mr Brittin admitted that a "lot of the aspects of selling" did take place in the UK. But he insisted that the "closing of the transaction" took place in Dublin.
He said Dublin was Google's largest operation in Europe, with 3,000 staff, and that any advertiser in Europe contracts with Google in Ireland. He suggested that 99 per cent of Google's advertising business was conducted through Dublin – but admitted that the remaining 1 per cent accounted for "between 60 and 70 per cent" of Google's UK base's advertising revenues.
Ms Hodge said his claims were contradicted by documentation MPs had seen and evidence from a "stream" of whistleblowers. She said she had seen an invoice sent to clients by Google from a London address, and a presentation describing steps of the selling process involving UK-based staff.
"It was quite clear from all that documentation that the entire trading process and sales process took place in the UK," she told him. Mr Brittin argued that some of the evidence related to the period before he joined the company six-and-a-half years ago and that suggestions that Google was trying to "disguise" the way it operated were "just not true".
The committee had also been contacted by a senior salesman who Ms Hodge said was paid a "modest" salary, but three or four times that in commission for sales and for "closing deals".
"This is somebody, a senior salesman, who said he was making sales in the UK. This is a UK sale and should be subject to UK tax," she added. "I would ask you to reconsider what you are telling us, because it doesn't make sense to your own staff, it doesn't make sense to the committee, it doesn't make sense to any of your clients."
Mr Brittin said that although sales staff in the UK were promoting Google and encouraging people to spend money, the transaction would take place in Ireland.
But Ms Hodge replied: "We all accept the billing is in Ireland. If sales activity is taking place in the UK, you are misleading both Parliament and the taxpayers in suggesting that is not happening."
After he had finished giving evidence, Ms Hodge told him she believed Google was guilty of "devious, calculated and, in my view, unethical behaviour in deliberately manipulating the reality of your business in order to avoid paying your fair share of tax to the common good".
Ms Hodge also sharply criticised HM Revenue and Customs' chief executive, Lin Homer, over the way her staff interpreted the law in relation to companies such as Google. "I think your judgement belies common sense," she said. "We don't trust your judgement. I think your staff are being bamboozled." Ms Homer, who was appearing after Mr Brittin, insisted that HMRC was better qualified than MPs to determine what taxes were due.
She added that she did not think that Google's large UK-based sales staff would have any effect on its tax status. Google's staff in the UK are employed by a separate company which is contracted to provide services to Google in Ireland – allowing the company to reduce its tax bill. The practice, known as "transfer pricing", is subject to an international effort by the UK, US, France and Germany to change the law.
Speaking afterwards, the Business Secretary, Vince Cable, said public anger at the tax arrangements of companies such as Google was "absolutely justified". "There is public outrage," he said. "And, particularly if you are a small company which can't relocate overseas and has to pay a lot of tax, I can understand why people are absolutely furious."
Hodge vs Brittin: The key exchanges from the committee grilling
Margaret Hodge "Mr Brittin, last time you at least had the grace to be honest and say you set up in Ireland because it's a low-tax jurisdiction … if it's so great, why aren't you based there? Why are you living in the UK?"
Matt Brittin "When we chose where to operate, the lower-tax regime was one factor in establishing us in Ireland."
MH "Why aren't you based there, if that's where your head office is and you're in charge?"
MB "I spend my time wherever I need to be across Europe."
MH "Why are you based in the UK? You pay UK PAYE. Why aren't you based there if actually the heart of the machine is in Ireland?"
MB "I happen to be British and I enjoy living in London."
MH "Why? A lot of Brits work all over the world."
MB "I don't have to live in Ireland, I can live where I want to live and where I can conduct the business from."