The U.S. and India extend their standstill agreement on digital-services tax until Sunday, coinciding with a crucial deadline for a global tax deal. The agreement affects major U.S. tech giants and international trade relations.
Bollywood Fever: The United States and India have extended a standstill agreement concerning U.S. retaliation over India’s digital-services tax until Sunday, aligning it with the upcoming deadline for a global deal to reallocate taxing rights on the world’s largest and most profitable companies, according to a statement from the U.S. Treasury on Friday.
In a brief announcement, the Treasury indicated that a political compromise from November 2021, which had expired on March 31, will now be extended until the end of the month as negotiations on the “Pillar 1” tax agreement continue. The success of the Pillar 1 deal is currently in jeopardy, as the U.S., India, and China have yet to reach consensus on crucial elements related to the calculation of transfer pricing, which is essential for determining local tax liabilities.
The stakes for these last-minute negotiations are significant. Should the deal fail, several countries might reinstate their taxes on major U.S. tech giants such as Apple, Google, and Amazon, potentially leading to punitive duties on billions of dollars worth of exports to the U.S.
The extension of the U.S.-India agreement also aligns with the expiration of similar deals with six other countries that had implemented digital-services taxes: Austria, Britain, France, Italy, Spain, and Turkey. These nations suspended their digital-services taxes following a two-pillar tax deal struck in October 2021 by nearly 140 countries. This deal aimed to impose a 15% global minimum corporate income tax and reallocate some taxing rights on large multinationals to the countries where they sell goods and services, thereby replacing the digital-services taxes.
In tandem, the U.S. Trade Representative’s office agreed to suspend planned trade retaliation against these digital taxes while negotiations continued.
U.S. negotiations are being spearheaded by the Treasury, whose spokesperson declined to comment on the current state of negotiations. Similarly, a spokesperson from the U.S. Trade Representative’s office refrained from commenting on next steps but reiterated, “As we’ve said previously, we oppose digital-services taxes that unfairly target U.S. companies, and the OECD/G20 Inclusive Framework negotiations offer the best path to address the challenges that digitalization of the economy poses to the international tax system.”
Treasury Secretary Janet Yellen told Reuters at a G7 finance meeting in May that India and China were impeding agreement on the alternative transfer-pricing mechanism known as “Amount B,” although discussions were ongoing.
Italy’s finance minister attributed the lack of agreement to U.S. demands. Italy, seeking an extension of the U.S. standstill agreement, has reportedly asked Google to pay $1 billion in unpaid taxes, according to sources who spoke to Reuters earlier on Friday.
The extension of these agreements underscores the high stakes and complexities involved in reaching a global consensus on taxing digital services and multinational corporations.
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