Google has reached a deal with the British taxman to pay £130m (€170m) in back taxes.

The agreement covers payments back to 2005, the internet company said.

"We will now pay tax based on revenue from UK-based advertisers, which reflects the size and scope of our UK business," a spokeswoman said.

"The way multinational companies are taxed has been debated for many years and the international tax system is changing as a result. This settlement reflects that shift and is in line with recent OECD guidance."

A spokesperson for the UK's HM Revenue and Customs (HMRC) confirmed it had reached a deal with Google.

"The successful conclusion of HMRC enquiries has secured a substantial result, which means that Google will pay the full tax due in law on profits that belong in the UK," the spokesman said.

"Multinational companies must pay the tax that is due and we do not accept less. HMRC enforces the tax rules impartially, irrespective of the size or structure of the business."

Google paid just £20.5m (€27m) in tax in 2013, despite raising $5.6bn (around €5.1bn) in revenues in the UK, according to FT Weekend.

HMRC has been investigating if Google avoided paying tax by allocating profits to Ireland, the home of its European operations.  

In March's the UK's budget chancellor George Osborne announced the introduction in April of a so-called "Google tax" targeting firms that move their profits overseas.

The "diverted profits tax" is designed to discourage large companies from taking earnings out of the UK to avoid tax.

Mr Osborne also said he would close tax loopholes that enabled businesses to take account of foreign branches when reclaiming VAT on their overheads.

However, critics have said compared to the profits Google has made in the UK in the last decade, the amount is "trivial" and should be around seven to ten times more than that.

The British Labour party has dismissed the amount as "derisory" and has called for a "full report" on the deal. 

Mr Osborne has welcomed the agreement and suggested that it could see other large firms reaching similar deals with the taxman although he would not be drawn on whether Facebook could be one of them.

He said the Government had collected tax from Google that the Labour government had failed to collect when it had been in power and it was "a bit rich" for Labour politicians to criticise the amount paid.