Finance ministers from the world's seven wealthiest nations have agreed to set a minimum of 15% tax on multinational tech companies in the hope that other countries will follow suit.
The UK Chancellor of the Exchequer, or finance minister, Rishi Sunak announced on Saturday that the move would ensure that the richest companies "paid their fair share".
The G7 finance ministers agreed to commit to a global corporate tax rate of at least 15% "operated on a country-by-country basis," Sunak added.
They also said the largest and most profitable multinationals will be required to pay tax in countries where they operate and not just where they have their headquarters.
It comes as finance ministers met ahead of the G7 in the United Kingdom, set to take place from 11-13 June.
"Our intensive efforts over the past three years are bearing fruit. The seven most important industrial nations have today supported the concept of a minimum taxation for companies," German finance minister Olaf Scholz tweeted.
"This is very good news for tax justice and solidarity, and bad news for tax havens around the world."
French finance minister Bruno Le Maire said the 15% corporate tax was a minimum and that the government would "fight" to make sure the tax was as "high as possible". But he also called the move "historic."
Nick Clegg, VP for global affairs at Facebook, tweeted: "We want the international tax reform process to succeed and recognise this could mean Facebook paying more tax, and in different places."
But critics said the corporate rate was far too low.
"It’s absurd for the G7 to claim it is ‘overhauling’ a broken global tax system by setting up a global minimum corporate tax rate that is similar to the soft rates charged by tax havens like Ireland, Switzerland and Singapore. They are setting the bar so low that companies can just step over it," Gabriela Bucher, executive director of Oxfam International, said in a statement.
U.S. support for a global corporate tax had helped the initiative to gain momentum.
The country's treasury secretary Janet Yellen said "that global minimum tax would end the race-to-the-bottom in corporate taxation, and ensure fairness for the middle class and working people in the U.S. and around the world."
Days ago, economist Joseph Stiglitz called on EU countries to support President Joe Biden's call for a 21% global corporate tax.
Stiglitz wrote in a Financial Times editorial that it was not too late for European countries to commit to a more ambitious global corporate tax, emphasising that the revenues from such a tax were needed as countries emerge from the COVID-19 pandemic.
Many are also hoping that the global tax effort will be adopted by the larger Group of 20. Finance ministers are set to meet in Venice in July.
In a communiqué released on Saturday G7 finance ministers also encouraged members, which include Germany, Canada, France, the United States, Italy, Japan and the UK, to contribute more funds to the World Health Organization and Gavi's COVAX scheme to get vaccines to lower income countries.