The UK Public Accounts Committee (PAC) has found that Google is avoiding paying corporation tax and the company’s reputation will be restored only if it establishes a corporate structure to pay tax for the profit it generates.

Google claims that its sales to UK clients take place in Ireland even though the vast majority of its activities takes place in the country.

PAC chairman Hon Margaret Hodge said Google generates enormous profits in the UK and despite an $18bn turnover between 2006 and 2011 the company paid the equivalent of just $16m in taxes to the government.

"Google brazenly argued before this committee that its tax arrangements in the UK are defensible and lawful. It claimed that its advertising sales take place in Ireland, not in the UK," Hodge said.

"This argument is deeply unconvincing and has been undermined by information from whistleblowers, including ex-employees of Google, who told us that UK based staff are engaged in selling. The staff in Ireland simply process the bills."

"The company’s highly contrived tax arrangement has no purpose other than to enable the company to avoid UK corporation tax."

Hodge noted that Google has also conceded at the second hearing that its engineers in the UK are contributing to product development.

PAC said Her Majesty’s Revenue and Customs (HMRC) needs to be much more effective in challenging the artificial corporate structures created by multinationals with no other purpose than to avoid tax.

The committee has urged HMRC and HM Treasury to push for an international commitment to improve tax transparency.

Major companies like Google and Starbucks have faced scrutiny in the UK over their tax affairs in recent months and have even asked by legislators to explain their corporate tax contribution.

"This is not specially to single out Google or indeed Starbucks and Amazon who had previously given evidence to us. The tax avoidance activities of these multinational companies are illustrative of a much wider problem."

"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."