MPs have launched an inquiry into the UK’s tax system in the wake of the outrage over a deal that saw Google pay around £130m in backdated tax.

The House of Commons’ Treasury Select Committee will consider whether a radical shakeup to the UK’s corporation tax is needed.

They will consider whether tax on business could be based on turnover rather than profit. It will also review whether HMRC is doing enough to tackle tax avoidance

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The inquiry is not directed specifically at Google.

Committee chair Andrew Tyrie said: “The complexity of tax law is turning what should be a straightforward principle – that everybody should pay the correct amount of tax – into a piece of elastic.

“For corporation tax, for instance, the problem is exacerbated by the globalisation of economic activity and any liability to tax that accompanies it.

“A corporation’s duty to shareholders will be to minimise its tax liability. It should be the duty of those making tax policy to find better ways to limit the elasticity. Google may be the symptom, but it is not the cause.

“There is a lot the government could be doing. Tax policy must be made more practicable and the tax system more coherent. Tax needs to be fair. It needs to provide more certainty and stability. There is a lot to do and a lot for the committee to examine.”

This comes after it emerged Google has paid an effective rate of 3% tax when it reached an agreement with HMRC on backdated tax since 2005.

The Times today reports that the tech giant is negotiating a tax settlement with France worth around three times the amount it paid to Britain.

The amount courted many critics, with shadow chancellor John McDonnell branding the figure “derisory” and called on the Treasury to publish more details about big companies’ tax affairs. 

But George Osborne hailed the deal as a “major success” and “victory” for the Government and insisted private tax affairs should not be put in the public domain.

Treasury Minister David Gauke yesterday faced outraged MPs in the Commons, with Tory MP Steve Baker claiming the deal was “unacceptable to the public”.

The committee has also said it will ask Google to give evidence about how the deal was reached.

Professor Prem Sikka, a tax expert from the University of Essex, said the deal meant Google would have paid an effective corporation tax rate of 2.77% on its £7.2bn UK profits since 2005.

The official rate of corporation tax is 20%.

Speaking earlier, the Downing Street declined to repeat Mr Osborne’s description of the deal as a “major success”.

“It’s a step forward, of course there’s more to do,” the prime minister’s spokeswoman said.

She added: “It’s important to see the context of the work the government has been doing to ensure multi-national companies pay tax when it’s due. That’s an issue that successive governments have grappled with.”