Downing Street distanced itself on Monday from George Osborne's claim that the tax deal with Google represented "a major success", amid growing criticism of the settlement.
Google’s agreement to pay £130m in back taxes to the UK government has reignited a controversy that pushed tax avoidance to the top of the international agenda three years ago.
The deal ended a decade-long probe by tax authorities into whether the tech group had skirted its tax bill by allocating profits earned in the UK — its second biggest market — to its European base in Ireland, where tax rates are lower.
Conservative MPs — led by Boris Johnson, London mayor — have lined up to criticise what they said was a "derisory" payment by the US multinational.
Andrew Tyrie, chairman of the Commons treasury committee, announced an inquiry into corporate taxation saying that fundamental reforms would “probably now have to be considered”.
The chancellor’s enthusiastic reception of the Google agreement was not echoed by Number 10. David Cameron’s spokesman declined to repeat Mr Osborne’s assertion that the deal was a “major success” and “a victory”.
“It’s a step forward but there’s more to do,” the prime minister’s spokesman said. “We have made it clear that we want to see low taxes for business but tax must be paid. Clearly there is more work for the government to do to make sure multinational companies pay their tax.”
David Gauke, treasury minister, was forced to defend the deal in the House of Commons and rejected suggestions from some MPs that Google’s effective tax rate was just 3 per cent. But he said he could not say what rate the company had paid because he was not privy to tax information.
He reminded MPs that international rules dating back to the 1920s decree that corporation tax was paid on the basis of where economic activity takes place rather than where profit was made.
But Mr Tyrie's treasury committee will look at whether the rules need to be changed. MPs are also expected to call multinationals such as Google, Facebook and Amazon to give evidence on their tax affairs.
John McDonnell, shadow chancellor, claimed the deal with Google had helped to form “an unholy alliance between myself, The Sun, the mayor of London and even Number 10”.
Steve Baker, one Tory MP, said the Google deal was “derisory”, echoing the view of Mr Johnson, and “totally unacceptable” to the public. The Sun newspaper said it was “a kick in the goolies”.
The issue of corporation tax has also been rising up the US political agenda. On Monday, Johnson Controls revived a debate about tax-cutting "inversion" deals, after it agreed a $20bn combination with Tyco International which would move the US manufacturer's domicile to Ireland.
(Copyright The Financial Times Limited 2016)
