“We don’t innovate here” – Google’s curious UK tax rationale

The lashing-out from politicians in troubled economies moved from France to the U.K. on Monday, when Parliament’s Public Accounts Committee clobbered Google (s goog), Amazon (s amzn) and Starbucks (s sbux) following recent headlines alleging tax avoidance.

After Amazon.com’s public policy director Andrew Cecil put in an especially inept attempt in which he angered committee members by not being able to answer most questions about his company’s tax policies and procedures — the British people have become quite irate of late amid widespread reports about tax avoidance by U.S. companies — Google’s central and northern Europe VP Matt Brittin put on a better show. But his central argument is left open to question.

Brittin said Google pays a legal proportion of tax but one which some observers consider a low amount because:

“We pay corporation tax here on the activity our people do. All the innovation stuff comes out of California.”

That flummoxed committee chair Margaret Hodge and fellow committee member Amyas Morse, the National Audit Office’s comptroller, who tried to focus on money that Google U.K. sales staff earn in the U.K., regardless of where their tools were built. “The income is not generated in California, is it?,” Morse said.

What’s more, Brittin’s argument was not necessarily wholly accurate.

Few would question that the majority of Google’s magic is made in Mountain View. But, one year ago, Google made a song and dance about a new London engineering center it said was contributing to influential products including AdSense, Maps, Local, Chrome, Android and speech recognition.

At the opening of the lavishly-designed engineering floor at Google’s Victoria, London, UK headquarters, which was home to 350 engineers, VP for Europe and emerging markets engineering Nelson Mattos said:

“It was the London office that spearheaded Google’s entry to the mobile space. Products like AdSense are driven in part out of this office.

“This site has set a new standard for what an engineering floor should look like. It is within informal environments that ideas come out.”

Either someone should tell Google’s London engineering staff that they’re not innovating or, like last year, they deserve a slap on the back for doing so. Either Google’s main money-maker, AdSense, is part-made in the U.K., or it isn’t. But Google can’t necessarily have it both ways.