A powerful committee of British MPs called on Thursday for a tax probe into Google, after concluding that the US Internet giant sought to avoid paying corporation tax on profit earned in Britain.
The House of Commons Public Accounts Committee revealed its findings in a report which attacked Google for claiming that sales were conducted in Ireland -- which has the lowest corporation tax rate in the eurozone -- and not in Britain.
Google reacted by saying that it abided by the law and that politicians, not companies were responsible for how tax law was drafted.
The cross-party committee said it had received information from ex-Google employees that Britain-based staff were directly engaged in selling services.
In reaction, Google insisted that it had cooperated with tax laws, but welcomed any moves to make the system "simpler and more transparent".
The committee's report was published ahead of next week's G8 summit in Northern Ireland, where host Britain will seek to tackle tax avoidance, which is legal, and tax evasion which is not.
"To avoid UK corporation tax, Google relies on the deeply unconvincing argument that its sales to UK clients take place in Ireland, despite clear evidence that the vast majority of sales activity takes place in the UK," the report said.
"The big accountancy firms sell tax advice which promotes artificial tax structures, such as that used by Google and other multinationals, which serve to avoid UK taxes rather than to reflect the substance of the way business is actually conducted."
The report concluded that HM Revenue & Customs (HMRC) -- Britain's taxation authority -- needed to probe and challenge what it called "artificial" tax arrangements.
"HMRC is hampered by the complexity of existing laws, which leave so much scope for aggressive exploitation of loopholes, but it has not been sufficiently challenging of the manifestly artificial tax arrangements of multinationals," the report said.
"HM Treasury needs to take a leading role in driving international action to update tax laws and combat tax avoidance."
The committee found that Google had generated $18 billion of revenue in Britain between 2006 and 2011. No information on profits was available.
However, during this time, it paid just $16 million in corporation taxes in the country.
The committee concluded that it was "extraordinary" that British authorities had failed to challenge the tax structure of Google, and other multinationals operating in Britain.
"We accept that HMRC is limited by resources but it is extraordinary that it has not been more challenging of Google's corporate arrangements given the overwhelming disparity between where profit is generated and where tax is paid," it added.
"HMRC needs to be much more effective in challenging the artificial corporate structures created by multinationals with no other purpose than to avoid tax.
"HMRC should now fully investigate Google in the light of the evidence provided by whistleblowers," it added.
Google has repeatedly claimed that it is doing nothing wrong because it routes all of its European advertising sales through its offices in Ireland, where corporate tax rates are low comparted to rates elsewhere in Europe.
The US-based group has insisted that it was for countries not companies to decide tax policies.
"As we've always said, Google complies with all the tax rules in the UK, and it is the politicians who make those rules," a Google spokesperson said on Thursday.
"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."
Senior Labour lawmaker Margaret Hodge, who chairs the committee, has previously described Google as "evil" for unethically avoiding paying vast amounts of tax in Britain.
Hodge had made the comment as she questioned Google UK boss Matt Brittin at a committee hearing last month.