Britain has said it will tax the revenue that online platforms such as Google, Facebook and Amazon make in the country to update a system that had not kept pace with changing digital business models.
"The rules have simply not kept pace with changing business models," UK finance minister Philip Hammond said in his annual budget speech.
"It's clearly not sustainable, or fair, that digital platform businesses can generate substantial value in the UK without paying tax here in respect of that business."
The tax will be designed to ensure established tech giants, rather than start-ups, shoulder the burden, Mr Hammond said.
Profitable companies would be taxed at 2% on the money they make from UK users from April 2020 under the measure, and is expected to raise more than £400m a year.
The tax will target platforms such as search engines, social media and online marketplaces, Mr Hammond said, and it will be paid by companies that generate at least £500m a year in global revenue.
Mr Hammond said Britain had been leading attempts to reform international corporate tax systems, but progress had been painfully slow and governments could not simply talk forever.
Mr Hammond has previously said that the British government was looking at improving "fairness", but wanted to focus on companies whose business models were "exploiting either the personal data of UK consumers or exploiting content which is uploaded by UK consumers".
Shares in US-listed Amazon dropped almost 5% following the announcement.
Netflix and Google were also trading lower.
The rise of online shopping has been a major focus for critics of the existing tax system in recent months, with companies such as Tesco calling for a level playing field between online and bricks-and-mortar retailers.
Additional reporting: PA
