Google's £130 million tax deal could be investigated by Brussels

Google's tax deal with the UK authorities could be investigated by Brussels as George Osborne maintained the agreement was a "major success".

The Chancellor said he understood "frustration and anger" over multinationals avoiding big bills but blamed international laws and said he always sought "the best deal for Britain".

The £130 million 10-year deal with HM Revenue and Customs on back taxes was hailed as a "victory" by Mr Osborne when it was announced at the weekend but immediately came under fire.

European Union competition commissioner Margrethe Vestager indicated she is ready to look into complaints that the settlement breached EU rules - as the Scottish National Party and Labour both asked her to launch an investigation.

The developments came as the European Commission announced a new drive to align tax laws in all 28 member states, to help in the fight against aggressive avoidance by large companies.

Asked if he stood by his initial upbeat assessment of the deal, Mr Osborne told Sky News: "My only interest, as the country's Chancellor of the Exchequer, is to get the best deal for Britain - to bring the jobs here, the businesses here and to make sure that taxes are paid here.

"When I became Chancellor, Google paid no tax. Now Google is paying tax and I have introduced a new thing called a diverted profits tax to make sure they pay tax in the future.

"I regard that as a major success.

"Is there more to do? Clearly there is. We've got to make sure the international rules catch up and we are leading that effort.

"But ultimately the solution to all of this is to make sure we have got more British companies out there that are great successes in areas like tech."

In his letter to Ms Vestager calling for a probe, shadow chancellor John McDonnell suggested the deal could have broken state aid rules by offering Google "favourable treatment".

He said: "Public concern has focused on both the low sum offered by Google in lieu of taxes dating back over a decade, on the potential future damage to UK tax revenues, and on the revenues of our EU partners."

Mr McDonnell added: "We believe £130 million to be significantly lower than a fair or reasonable assessment of Google's UK turnover and profits would suggest, with experts suggesting that Google has been levied an effective tax rate of around 3%.

"I am therefore requesting an investigation under EU competition law, since we are concerned that, first, the deal is arguably not compliant with state aid rules, creating a favourable treatment for a particular company; second, that if the deal is generalised, it could constitute a serious potential threat to the ability of other EU members to levy taxes in their jurisdiction."

Ms Vestager said it was "too early" to say if an inquiry would be launched into whether the deal amounted to "illegal state aid", but Labour MP Margaret Hodge - former chairwoman of the Commons Public Accounts Committee (PAC) - said she should "take a look".

Executives from Google and HMRC bosses are to be grilled on the deal by the PAC on February 11 in the latest of a series of hearings by the influential spending watchdog into multinationals' tax affairs.

The internet search giant defended the controversial deal, insisting it had complied with the law and was paying "the full amount of tax that HM Revenue & Customs agrees we should pay".

But one of the tech company's biggest UK shareholders said it should pay "much more".

James Anderson - whose Scottish Mortgage Investment Trust owns £120 million of shares in Google's parent company, Alphabet - told The Times: "It is in the long-term interests of Google and others of that ilk to pay decent rates of tax. They are beneficiaries of state spending at many levels and in return they would get respect."

In a letter to the Financial Times, Google's vice president of communications and public affairs, Peter Barron, insisted the company paid UK corporation taxes at the standard rate of 20%.

Mr Barron wrote: "As a US company, we pay the bulk of our corporate tax in the US: 3.3 billion dollars in the last reported year. What should Google pay in the UK? We pay tax based on the value added by the economic activity of our staff here, at the current standard rate: 20%.

"After a six-year audit we are paying the full amount of tax that HM Revenue & Customs agrees we should pay, including £130 million in additional back tax.

"Governments make tax law, the tax authorities independently enforce the law, and Google complies with the law."