HMRC has been investigating the internet giant Google’s complex tax arrangements since 2009.

Public awareness of tax planning by multinationals has grown since then, and in 2013 executives from Google and other big companies came under fire from parliament’s Public Accounts Committee.

Now the taxman has concluded its probe and Google has agreed to pay £130m.

What was Google doing?

The first point to make is that Google wasn’t breaking the law.

Corporation tax is complicated, particularly when companies operate in several different countries, and there are legal ways of minimising the bill owed to various jurisdictions.

Like many other large businesses, Google was taking advantage of different rules in different countries, using a well-known arrangement known as the Double Irish with Dutch sandwich”.

This involves setting up subsidiaries in Ireland and the Netherlands which pay royalties to each other, with the profits funnelled through the tax haven of Bermuda.

The tax laws of Bermuda and the EU made variations of this wheeze very tax-efficient, although Ireland recently bowed to international pressure and changed its tax rules, which should see the Double Irish phased out.

Most of the details of the deal Google did with the UK authorities have not been disclosed, so it’s not absolutely clear what has changed.

The company has said it will start to pay tax “based on revenue from UK-based advertisers, which reflects the size and scope of our UK business”.

This suggests that the bit of the Double Irish set-up where UK advertising revenue was routed through low-tax Ireland has come to an end.

Is £130m enough?

The basic argument is whether Google pays enough tax, considering the amount of business it does in the UK.

In 2013 the business reported sales of £3.8bn in Britain but paid just £20.4m in UK taxes. Again, there is no suggestion of illegality.

Most critics are making this kind of comparison the sales Google and other companies generate here, and the amount of corporation tax they pay, but there is no legal relationship between these two things.

Corporation tax is not paid on UK sales, or even simply from the profit made on sales, so to say that Google had an “effective tax rate” of single figures in 2013 when corporation tax was 23 per cent does not mean the company was breaking the law.

Nevertheless, tax campaigners often compare sales or turnover with tax to make a point about the size of Google’s operations in the UK and the amount of tax it pays.

The suggestion is that the company is paying very little tax despite having a major operation here.

The Tax Justice Network has said Google ought to be paying £200m a year in corporation tax.

Professor Prem Sikka from the University of Essex has estimated that the £130m shortfall should be more like £1.8bn, based on limited information about Google’s profit margin, and changing corporation tax rates since 2005.

It’s not if any of the £130 million is made up of back taxes and penalties for late payment, which we might ordinarily expect HMRC to demand.

The Financial Times reports that the deal includes interest on back taxes, but says Google has not been hit with a fine or penalty. We don’t know what the source of this information is.

HMRC insists this is a good deal, a spokesman saying: “The successful conclusion of HMRC enquiries has secured a substantial result, which means that Google will pay the full tax due in law on profits that belong in the UK. Multinational companies must pay the tax that is due and we do not accept less.”

Are Google the only ones?

No. Fellow multinationals Facebook, Apple, Amazon and Vodafone among others are facing questions over their tax arrangements.

Again, this is based on comparisons between revenue raised in Britain and tax paid here, and there is no suggestion of illegality.

On the other hand, the European Commission ruled last year that tax breaks given to coffee giant Starbucks and the Italian car-maker Fiat by Luxembourg and the Netherlands were illegal, as they amounted to a form of state aid.

The commission found that rulings made by the tax authorities of those countries “endorsed artificial and complex methods to establish taxable profits for the companies” which “do not reflect economic reality”.

“As a result, most of the profits of Starbucks’ coffee roasting company are shifted abroad, where they are also not taxed, and Fiat’s financing company only paid taxes on underestimated profits.”