Google has paid no tax in Britain since 2007, even though the country is its most important overseas market, because income from selling ads on its UK website goes straight to its Irish subsidiary.
Last year, UK advertisers accounted for US$3 billion ($4 billion), or 13 per cent, of Google's revenues, but its Google UK subsidiary has reported losses for several years.
That is because Google UK is structured so that its business is defined as "the provision of marketing services to Google Ireland and the provision of research and development services to Google" - services for which it was paid £169 million ($355 million), an increase on 2008 but still not enough to cover all the company's UK expenses.
The latest filing by Google UK shows that "administrative expenses" rose by £21.6 million, eclipsing an increase of £19.8 million in revenue and resulting in a loss of £9.7 million.
The legality of tax-avoidance structures hinges on whether service agreements and other inter-company payments are at market prices, rather than at artificial rates.
Google says it abides by all applicable laws and has an obligation to its shareholders to limit its global tax bill.