The UK needs to "beef up" action against tax avoidance and subterfuge by big firms, Business Secretary Vince Cable said, accusing some of engaging in "systematic abuse".
He said he did not know whether coffee giant Starbucks was making a loss on its UK operation - the reason it gives for paying little or no corporation tax.
It was one of several well-known multinationals which endured an uncomfortable grilling by MPs last week amid mounting anger over the use of overseas bases and other tactics to avoid tax.
Mr Cable said the UK had to be an "attractive place" to do business if it was to bring in the foreign investment it needed, but he added that more should be done to crack down on tax "dodging".
"We need inward investment and we need companies coming from all over the world so we need to make this an attractive place," he told BBC1's Andrew Marr Show.
"But while they are here, if they make profits they should pay tax on their profits.
"There is nothing more galling to small and medium sized companies that pay their tax to the British Government and we find these people dodging it.
"Our own tax authorities have got to be very tough on things like royalty payments, which is where a lot of the subterfuge takes place."
Mr Cable said it was "completely unacceptable where there is systematic abuse taking place", but said it was tough to get to the bottom of the often-complex operations.
"It is quite difficult to drill down to what the problems are.
"Starbucks claims they are actually making losses in the UK. I don't know whether they are not but you would need some pretty intensive investigation by the Inland Revenue to establish what exactly is going on, whether their transfer prices and their royalties are being fiddled or not."
Smaller businesses were "very angry" at the "appalling story of abuse of company taxation", he said.
"You have got to have a combination of action at an international level, which the Chancellor is pursuing with other countries which are just as angry as we are about the way the system is being fiddled, and we've got to beef up our own capacity to crack down on tax abuse here."