According to local reports, the investigation into Google includes evasion of business and personal tax, and tax on employee options.
At least some of the investigation relates to how Google has previously treated transactions from Chinese customers to its US head office. Between 2000 and 2003 Google offered Adwords services to Chinese citizens that did no go via the local subsidiary, resulting in no local records from which authorities can check for tax avoidance. A further allegation suggests that domestic customers until 2007 could use agents to place Adwords ads, avoiding a formal invoice and auditable paper trail, possibly in breach of Chinese tax law.
Sina.com (in Chinese) received some sort of confirmation from the Chinese tax authorities that the investigation was underway, and went on to say that the investigation could widen to include other online companies operating in China, including Taobao, Baidu and Yahoo.
Thanks to Billsdue for the tip