The G20 has backed a "fundamental" rethink of the rules on taxing multinational corporations, taking aim at loopholes used by companies like Apple and Google to avoid billions in tax.
The group of leading economies released an action plan drawn up by the OECD that said the existing system did not work, especially when it came to taxing companies that trade online.
Large budget deficits and public anger at inter-company structures designed to channel profits into tax havens has prodded governments to act.
Google, Apple and others say they follow the law wherever they operate and pay what tax is due, while tax specialists point out that companies have a duty to shareholders to organise their affairs in a tax-efficient way within the laws set by politicians.
The Department of Finance said it welcomed "the work of the OECD on the very important topic of BEPS [base erosion and profit shifting], and also the coordinated effort at OECD level to deal with the challenges BEPS poses."
In a statement issued this lunchtime the department said that "Ireland along with other OECD members was actively involved in focus groups which had input into drafting the Action Plan.
"[It] involves a rethink of the fundamentals underlying international tax principles, in light of the constantly changing business environment, with which international common tax principles may not have kept pace."
'once in a century' opportunity to reform tax - OECD
Pascal Saint-Amans, Director of the OECD's Centre for Tax Policy, said governments' frustration with companies' aggressive tax avoidance had created a "once in a century" opportunity to overhaul the rules, which date back to the League of Nations in the 1930s.
Currently, tax systems respect inter-company contracts even if they evidently seek to shift profits out of countries where they are earned into low or no-tax jurisdictions.
New rules will seek to put more emphasis on economic substance, the Paris-based think tank said.
"We clearly have reached the point where the governments don't care any more about taboos, and they just say we cannot be bound by pure contractual arrangements. It's not possible to only allocate the profit through only contractual arrangements," Mr Saint-Amans told reporters.
The OECD, which advises its mainly rich members on tax and economic policy, has two years to come up with specific measures that can be adopted internationally.
Business lobby groups such as the United States Council for International Business and Britain's CBI dispute that there is a broad problem with tax avoidance and say measures to address it could hit job creation, trade and innovation.
Yet non-governmental organisations and those representing smaller or domestically focused companies support the OECD project.
"EEF welcomes today's report and urges the UK and the G20 generally to respond positively to its central recommendations," said Steve Radley, Director of Policy at EEF, which represents many small and medium-sized British manufacturers.
Saint-Amans noted that all OECD members including Ireland, Switzerland and the Netherlands, which have been described as tax havens by lawmakers on both sides of the Atlantic, had backed the action plan.
The report identified a raft of loopholes used by companies in the technology, pharmaceutical and consumer goods sectors.
These include the practice of companies not creating tax residences or 'permanent establishments' in countries where they have major operations.
The OECD also criticised the corporate practice of designating units in tax havens as holders of group funds, patents or brands that can then be lent or licensed, for generous fees, to affiliates in countries where customers or factories are located.
International treaties designed to avoid double taxation of profits earned from cross-border activities but which have been used to avoid any taxation, are also under scrutiny. Mr Saint-Amans said protocols to amend existing treaties could be developed to stop such "double non-taxation".
He added that representatives of OECD and G20 members who helped draft the plan had rejected an idea favoured by some non-governmental groups that would split multinationals' profits among the different countries where they operate, according to an agreed formula, with each country assessing its share of profit.
Such a system exists in the United States for the application of state taxes, but countries agreed it was too complex to adopt internationally.
Some countries had proposed a reform of corporate income tax whereby companies would be taxed where their customers were based, but the group did not accept this idea.
Following are key passages of the draft of a communique prepared for the meeting of finance ministers and central bankers from the Group of 20 economies in Moscow.
1. We the G20 Finance Ministers and Central Bank Governors, met to discuss the current global economic developments and prepare for our Leaders' summit in September.
2. Since we last met, the global outlook has somewhat weakened on account of slower growth in some large emerging market economies and the recession in the euro area. As previously, the global recovery remains fragile and uneven, with unemployment continuing to be high in many countries. A range of factors continue to weigh on global growth prospects, including post-financial crisis deleveraging in the private sector and impaired credit intermediation, fiscal drag and still incomplete rebalancing of global demand, as well as structural impediments to growth in some countries.
In addition, policy uncertainty has recently triggered an increase in financial markets volatility and financial conditions have tightened. This has mostly affected emerging market economies, and some of them experienced a large increase in local bond yields, depreciation of currencies and liquidity pressures against the backdrop of reversing capital flows.
3. To address these challenges and to place the global economy on a path to stronger, more sustainable and more balanced growth, we are building on our recent policy actions by developing a comprehensive St. Petersburg Action Plan.
We agreed that its near-term priority is to boost jobs and growth by further reducing financial market fragmentation and moving decisively towards a banking union in Europe, continuing monetary support where needed, implementing medium-term fiscal strategies [including in the U.S. and Japan], calibrating the pace and composition of fiscal consolidation plans to economic conditions and fiscal space, rebalancing global demand, and taking measures to support growth, stability and resilience in emerging market economies.
We agreed that to boost jobs and growth over the medium term, the St. Petersburg Action Plan must include a comprehensive series of structural reforms that will increase labour force participation, employment and productivity. To this end, we have reviewed our structural reforms agenda and agreed to address the gaps in our commitments with reforms that clearly contribute to our collective objectives of strong, sustainable and balanced growth.
4. Achieving a stronger and sustainable recovery while ensuring fiscal sustainability in advanced economies remains critical. As agreed progress is being made in developing credible, ambitious and country-specific medium-term fiscal strategies for the St. Petersburg Summit. These strategies will be sufficiently flexible, to take into account near-term economic conditions, so as to support economic growth and job creation while putting debt as a share of GDP on a sustainable path.
5. We are determined to continue progress with rebalancing of global demand, which requires internal rebalancing through structural reforms and exchange rate flexibility. We reiterate our commitments to move more rapidly toward more market-determined exchange rate systems and exchange rate flexibility to reflect underlying fundamentals and avoid persistent exchange-rate misalignments. We will refrain from competitive devaluation and will not target our exchange rates for competitive purposes. We will resist all forms of protectionism and keep our markets open. Large surplus economies should consider taking further steps to boost domestic sources of growth, while deficit economies should implement measures to improve competitiveness.
6. Monetary policy should be directed toward domestic price stability and continuing to support economic recovery according to the respective mandates of central banks. We recognise the support that has been provided to the global economy in recent years from accommodative monetary policies including unconventional monetary policies. We remain mindful of the risks and unintended negative side effects of extended periods of monetary easing. Future changes to monetary policy settings will continue to be carefully calibrated and clearly communicated. We reiterate that excess volatility of capital flows and disorderly movements in exchange rates have adverse implications for economic and financial stability.