Executives for Alphabet Inc.'s Google business defended their settlement with the U.K.'s tax authority before a panel of British lawmakers Thursday, trying to stanch criticism of a deal that critics say let the search giant off too lightly.

In testy exchanges with lawmakers, Tom Hutchinson, Google's vice president of finance, said the deal reached with the U.K.'s tax authority was the largest settlement the Internet giant has paid outside the U.S. He was appearing before parliament's public accounts committee, which is tasked with ensuring British taxpayers get value for money from the government.

The deal, in which Google agreed to pay £ 130 million ($189 million) in back taxes and boost future tax payments, sparked outcry in the U.K. among those who say the Mountain View, Calif., company should have paid more. The U.K. is Google's second-largest market after the U.S., with $7.07 billion in revenue from U.K. clients in 2015.

Mr. Hutchinson defended the company's tax arrangements, saying they comply fully with U.K. laws.

"We are paying the right amount of taxes," Mr. Hutchinson said.

Also at the hearing, Matt Brittin, head of operations for Google in Europe, the Middle East and Africa, said the Internet giant's U.K. tax payments accurately reflected the economic activity the company carries out in Britain.

"We are paying tax at 20% on our activities in the U.K.," Mr. Brittin said, referring to the U.K.'s corporate-tax rate.

Google's defense of its deal is part of a broader effort by big multinational to set templates for how they should cope with a coming shake-up of global tax rules. Governments, particularly in Europe, are changing international tax treaties and laws to force companies like Google to pay more in taxes. Companies are now moving to alter their structures to comply with new rules -- but ideally without causing too much of a dent to the bottom line.

Amazon.com Inc., for instance, restructured its European operations last year to start collecting revenue directly in countries where its clients make purchases, shifting its tax base away from its European headquarters in Luxembourg to countries like the U.K. and France. But it isn't yet clear how much more—if anything—the thin-margin Amazon retail business will end up paying the taxman.

Google is also currently facing audits in multiple countries including Italy and France, which is asking for as much as €1 billion ($1.13 billion) in back taxes and penalties. France's economy minister said last month that Google was in talks with France to settle that deal, but it isn't clear if a deal is near.

At issue is how much business Google actually conducts in individual European countries. The company employs thousands of people across Europe as engineers or as marketers. But the company argues that clients in countries like the U.K. and France don't actually close any advertising deals with Google employees in those countries; instead, clients buy all their advertising from the local units' Irish parent. Local units like those in the U.K. make all their revenue in fees paid by Google parents in Ireland and the U.S.

Such arrangements, while legal, have attracted public ire and political criticism. Stewart Jackson, a member of Prime Minister David Cameron's ruling Conservative Party who sits on the public accounts committee, accused Google's executives Thursday of using these and other corporate structures to limit the company's tax bill.

"You've made a choice to avoid tax, and have set up structures specifically so to do," Mr. Jackson said, a charge Google's executives denied.

Lawmakers on the panel repeatedly underlined public anger at Google's tax arrangements in frequently hostile questioning.

"Our constituents are very angry. They live in a different world to the world you live in," Meg Hillier, the committee's chairwoman, told Mr. Brittin.

Under Google's U.K. deal, the company has committed to boosting what the company pays its U.K. unit by an unspecified percentage to reflect revenue from U.K. clients. For the 18 month period ended June 30, Google says that it is paying an additional £ 13.8 million in tax because of the settlement, out of total corporate tax for the period of £ 46.2 million, according to the company's most recent U.K. company filing.

The Organization for Economic Cooperation and Development, a group of rich countries, last fall issued a series of recommendations aimed at stopping large companies in many industries from using complex but legal structures to avoid paying hundreds of billions of dollars in corporate income taxes every year.

The European Union also proposed last month a common standard intended to thwart tax avoidance schemes by multinationals. The European Parliamentary Research Service estimates that corporate tax avoidance results in a loss of tax revenue to the EU of about €50 billion to €70 billion each year.

Write to Jason Douglas at jason.douglas@wsj.com and Sam Schechner at sam.schechner@wsj.com

 

(END) Dow Jones Newswires

February 11, 2016 07:35 ET (12:35 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.
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