The chancellor has backed down from his plans to introduce a number of reforms of the taxation of foreign profits after significant pressure from business leaders.

Under Alistair Darling's original plans, a global tax on "passive income", for example on royalties from intellectual property generated overseas, would be introduced, largely in order to combat what the Treasury sees as the growing problem of tax avoidance in the corporate sector.

However, it has now been revealed that ministers will now work with business leaders to reach a solution, with any changes to the way in which foreign profits are taxed likely to be adopted voluntarily rather than imposed from above.

While the u-turn has been seen by some critics as yet another climb-down by the chancellor, pointing to his past form over income tax and capitals gains tax proposals, the Treasury has stated that this latest development is proof that the policy of consulting with business chiefs over possible changes to legislation covering corporate finance is working.

"Business felt the changes [to the anti-avoidance] rules were not acceptable or workable and we're talking with them to resolve those concerns," one government official told the Financial Times.

"The proposals in the discussion document are all being rethought - we're not taking them forward."