Google yesterday refuted the accusation of tax evasion but admitted failure to meet the tax deadline as it tried to "consult local authorities".
The company made the statement as Lee Kaifu, president of its China operation, was reported to have evaded personal income tax of at least 5 million yuan over the past two years.
According to the Shanghai Securities News, the Beijing taxation bureau was investigating the search engine's tax records and found Lee defaulted on income tax payment for two years. The newspaper also said Lee had paid the outstanding tax after an inspection.
"Google has paid all related fees and income taxes for its employees, although we did miss the payment date as we were consulting local authorities for the terms that apply to us," the company said in a statement.
Lee, a Taiwan-born American, took the helm of the search engine's China operation in 2005. Before that, he was Microsoft's vice-president and helped the software giant establish its Asian research institute.
Analysts said Google's much more generous paycheck was part of the reason Lee defected. His salary could amount to more than 10 million yuan each year, taking into account his stock options and bonus.
Tax experts say expats who stay more than three months in China have to pay income tax according to local standards, with the highest rate levied at 45 percent.
"It's difficult to determine whether Lee evaded tax," said a source from a local tax bureau. "As long as someone pays the outstanding tax and related fees, we don't consider it evasion, whether he is a local or an expat."
Google was reported to be under tax investigation as some analysts said it might have evaded millions of yuan in taxes over the years.
Google started to offer Adwords services to Chinese citizens between 2000 and 2005 but it was reported that the transactions did no go via the local subsidiary, leaving no local records from which authorities could check for tax purpose.