Britain is to phase out a tax that had been imposed by search engines, social media networks, and online marketplaces because it has signed up instead to a new global arrangement.

The UK’s 2% digital services tax was expected to have raised billions of pounds and would have been levied on companies such a Facebook, Google, and Amazon. In the 2020/21 financial year, the tax raised some £300 million for the Treasury.

However, some 136 countries have signed up to a new global arrangement, known as Pillar One, on corporate tax reform and will come into force in 2023. The aim is to block companies operating from tax havens and to bring in revenue of some $150 billion a year.

The countries have also agreed to a two-year ban on imposing new taxes on giant technology firms such as Google and Amazon while the US government seeks to ensure the tax will work at home.

The global agreement was led by the OECD and includes a 15% global minimum effective corporate tax rate. This is in addition to new rules that will require the world’s multinationals to declare profits and pay more in the countries where they do business.

A few countries have refused to sign up for the new arrangement and these include Sri Lanka, Pakistan, Nigeria, and Kenya. Janet Yellen, the US Treasury secretary, urged Congress to “swiftly” enact the proposals and she described the agreement as a “once-in-a-generation accomplishment for economic diplomacy”.

Mathias Cormann, the OECD’s secretary-general, said the deal would make the international corporate tax system “fairer and work better”. However, he acknowledged there could be difficulties in getting the agreement put into law.

Companies with turnover exceeding €20 billion will be required to allocate 25 percent of their profits in excess of a 10% margin to the countries where they operate, based on their sales. The 10% profit margin will be calculated using an averaging mechanism, based on profit before tax.

Developing countries have complained about the arrangement, pointing this is worsened by the removal of their local digital service taxes. This led to Kenya and Nigeria refusing to sign up to the deal, even though the OECD said they would end up better off.

Other areas of the deal contained concessions enabling all G20 and EU countries to sign up to the minimum 15% corporate tax rate. Ireland succeeded in its demand for the tax to have a maximum of 15%, instead of the original wording of the deal that said “at least 15%” and in contrast to the original 21$ first mooted by the Biden administration. Hungary secured a longer transition period for the “substance-based carve-out”, allowing it to offer a low rate of tax for tangible investments in its jurisdiction, such as car plants, for 10 years. China also succeeded in having a clause inserted that will limit the effect of the global minimum tax on companies who are starting to expand internationally — because of concerns that its growing domestic companies would be clipped by the measures.

Under the deal, Britain will keep the revenue raised under the digital services tax until Pillar One comes into effect.

Once that happens, companies will be able to claim back – as a credit against future bills – any difference between the tax they have been paying under the digital services tax and what they would have paid under the new system, from January 2022.

The Treasury said: “This means that the UK will not lose out on tax revenue in the transition period, as for each business, the UK either retains the amount raised that Pillar One would have delivered if it had been in place originally, or the total revenue from our DST. The digital services tax will then be removed in favor of the global solution, which was always the UK’s intention.”

Chancellor Rishi Sunak said: “Following the landmark deal achieved earlier this month, I am delighted we have agreed on a way forward on how we transition from our digital services tax to the newly agreed global tax system. This agreement means that our digital services tax is protected as we move to 2023, so its revenue can continue to fund vital public services.”