Chancellor George Osborne has pledged to shut down a loophole known as the "double Irish" arrangement which allows multinational companies to lower their tax payments by hundreds of millions of pounds a year.
The arrangement has been widely used by technology firms and Mr Osborne's clampdown was instantly dubbed the "Google tax", although it is not actually a tax increase, but a measure to require companies to pay taxes which the Chancellor believes are already due.
Under "double Irish", companies use payments between entities within their corporate structure to shift income from a higher-tax country to one with lower corporate taxes, such as the Republic of Ireland. This could involve the creation of an offshore company to handle the rights to exploit the company's intellectual property.
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Pro business, but also pro tax
Among companies reportedly using the strategy are tech giants Google, Facebook, Apple and Microsoft, drug manufacturer Pfizer and cafe chain Starbucks.
Speaking to the Conservative annual conference in Birmingham, Mr Osborne said: "It is this pro-business Conservative Chancellor who says to some of the biggest technology companies in the world this today.
"You are welcome here in Britain with open arms. You have the advantages of our skilled population, broadband connections to deliver your services and our NHS to keep your employees healthy.
"Advantages that have to be paid for, so while we offer some of the lowest business taxes in the world, we expect those taxes to be paid not avoided.
"Some technology companies go to extraordinary lengths to pay little or no tax here. If you abuse our tax system, you abuse the trust of the British people and my message to these companies is clear.
"We will put a stop to it: low taxes but low taxes that are paid - part of our effort to reduce the deficit."
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Tackling tax avoidance globally
Aides said that the crackdown was a specifically British initiative alongside the international drive to tackle tax avoidance under the OECD's Base Erosion and Profit Shifting project (Beps).
Details of the measure, expected to raise hundreds of millions of pounds a year, will be set out in the Chancellor's Autumn Statement on December 3.
Diarmid O'Sullivan, tax policy adviser at development charity ActionAid, said: "The 'Google tax' proposed by Chancellor George Osborne today will be a potent weapon as long as it empowers the UK to override the type of corporate tax arrangements which are legal but abusive in reality.
"The Government has been prominent in calling for action on tax dodging in poor countries. We now urge it to help those countries design similar rules, while beefing up the UK's own anti-tax haven rules."