The UK government has signed an agreement with France, Germany, Italy and Spain to develop and pilot a multilateral information exchange in a bid to crack down on tax evasion.

Under the terms of the deal, a wide range of financial information will be automatically exchanged between the G5 group of countries. The scheme is based on an existing intergovernmental agreement to improve tax compliance approved by the G5 and the US, which was developed and published in July last year. This approach to implementing the US Foreign Account Tax Compliance Act (FATCA) is designed to minimise the costs involved for both businesses and governments.

The Treasury described the latest agreement as 'an important early step in a much wider move towards promoting a new international standard in the automatic exchange of tax information, providing a step change in the ability of tax administrations to clamp down on tax evasion'.

Exchequer secretary David Gauke said: 'This builds on the agreements we have reached with the Isle of Man, Guernsey and Jersey and the discussions currently underway with the Overseas Territories.'

The finance ministers of the G5 have written to Algirdas Semeta, the European commissioner with responsibility for taxation, inviting other European Union member states to join the pilot which they said 'will not only help in catching and deterring tax evaders but will also provide a template as to the wider multilateral agreement we hope to see in due course.'

In a statement, Semeta said the Commission recognised the need to adopt 'a tough common stance against tax havens, including sanctions against those who facilitate evaders. And we need to block off the pathways to aggressive tax planning and close opportunities for abusive tax practices.'

Semeta said: 'We need automatic exchange of information to be widely applied, as this is the most effective way of allowing countries to collect the taxes they are due.'