Italian fiscal police was auditing Google Italy financial records after earlier investigations alleged the company had failed to declare income, local media said on Wednesday.
The probe, launched in 2007, found that the Internet research group had failed to declare 240 million euros (310 million U.S. dollars) of revenue and evaded 96 million euros (124 million U.S. dollars) in taxes, according to the Italian economy ministry.
Google was reportedly suspected of developing a system to transfer profits from its Italian operations to Ireland so that it could benefit from a more favorable fiscal regime.
In the audit, tax police said that Google Italy had "evaded" taxes and called some of its accounting "artificial."
The company denied all allegations, saying that it "respects fiscal regulation in all countries in which it operates" and observes the Italian law as well.
The investigation was Google's latest entanglement with European fiscal authorities following similar tax avoidance allegations in France and Britain.