The agreement will “make sure the right companies pay the right tax in the right places”, the chancellor pledged.
Now they will be forced to pay a corporation tax rate of at least 15 per cent, though the rate will be allowed to rise in future. Mr Biden originally proposed 21 per cent.
More importantly, 20 per cent of the profits of around 100 of the biggest firms – likely to include Google, Facebook, Amazon and Microsoft – will be reallocated to the countries where sales have taken place.
The move is designed to end “offshoring”, where companies set up legal entities in low-tax countries – regardless of where their revenues are actually earned.
Mr Sunak said the agreement would tackle the problems of tax havens and tax-dodging digital companies, vowing: “We are going to level the playing field.”
Speaking after a meeting of G7 finance ministers in London, he said the new measures would make the tax system “fit for the global digital age”, adding: “That’s a huge prize for British taxpayers.”
The euphoria at the announcement is tempered by the fact that Mr Biden’s pitch of 21 per cent has been dropped. Only three developed countries – including Ireland – have corporation tax rates below 15 per cent.
Also, only the G7 countries have currently reached agreement, ahead of a meeting of the larger G20 grouping which includes the likes of China and India.
Labour criticised the 15 per cent figure, accusing the government of “actively watering down” hopes for a more ambitious pact.
“That would have brought £131m extra a week to Britain for our NHS and other public services, while also stopping our high streets being aggressively undercut,” said Rachel Reeves, the shadow chancellor.
Nevertheless, Mr Sunak hailed “a very proud moment” and praised fellow leaders’ “willingness to work together to seize this moment to reach a historic agreement that finally brings our global tax system into the 21st century”.
He defended the decision not to push for 21 per cent, telling Sky News: “First of all, the agreement reached here today says at least 15 per cent.
“And secondly, it is worth taking a step back. This is something that has been talked about for almost a decade.”
The British public wanted to know that “there is a level-playing field”, in regard to “whether people are operating in tax havens, or whether large, particularly online businesses, are able to not pay tax in the right places”, said the chancellor.
“That’s what this agreement gives us the ability to do, and it has been agreed among G7 colleagues, and once we broaden it out and implement it globally, it is a huge prize for British taxpayers.”
Facebook's vice-president for global affairs, Nick Clegg, said the deal was a big step toward increasing business certainty and raising public confidence in the global tax system, but acknowledged it could cost the company.
“We want the international tax reform process to succeed and recognise this could mean Facebook paying more tax, and in different places,” the former UK deputy prime minister said on Twitter.
An Amazon spokesperson said: “We believe an OECD-led process that creates a multilateral solution will help bring stability to the international tax system. The agreement by the G7 marks a welcome step forward in the effort to achieve this goal.”
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