David Loader
(Reuters) – The United States and India have extended until Sunday a tentative agreement on U.S. retaliation over India’s digital services tax, coinciding with a looming deadline for an international agreement that reallocates taxing powers to the world’s largest and most profitable companies, the U.S. Treasury Department said on Friday.
In a brief announcement, the Ministry of Finance said it would extend the November 2021 political compromise, which expired on March 31, until the end of this month as negotiations on the “Pillar 1” tax agreement continue.
The Pillar 1 agreement is at risk of collapse as the US, India and China have failed to agree on key elements of the agreement on transfer pricing calculations that help determine local tax liability.
The stakes in the last-minute negotiations are high: A failure to reach an agreement could lead some countries to reimpose taxes on U.S. tech giants such as Apple Inc., Alphabet Inc.’s Google and Amazon.com Inc., and risk punitive tariffs on billions of dollars of exports to the United States.
The extension of the U.S.-India agreement coincides with the expiration of similar agreements with six countries – Austria, the UK, France, Italy, Spain and Turkey – that had enacted digital services taxes.
These countries suspended the digital services tax shortly after about 140 countries finalized negotiations in October 2021 on a two-pronged tax agreement that would impose a global minimum corporate tax of 15% and reallocate some taxing rights of large multinational corporations to the countries where they sell their goods and services, which was meant to replace the digital services tax.
At the same time, the Office of the United States Trade Representative agreed to suspend trade retaliation against the digital tax until negotiations are completed.
The U.S. negotiations are being led by the Treasury Department, but a Treasury spokesman declined to comment on the status of the negotiations.
A USTR spokesperson also declined to comment on future actions, but added, “As we have said before, we oppose a digital services tax that unfairly targets U.S. companies, and the OECD/G20 Inclusive Framework negotiations provide the best path forward to address the challenges that the digitalization of the economy poses to the international tax system.”
Treasury Secretary Janet Yellen told Reuters at the G7 finance meeting in May that India and China were blocking an agreement on an alternative transfer pricing mechanism, known as “Amount B,” but that talks were continuing.
Italy’s finance minister also blamed U.S. demands for the failure to agree on terms. Italy is seeking an extension to its ceasefire agreement with the United States, and sources told Reuters on Friday that Italy is asking Google to pay $1 billion in unpaid taxes.
(Reporting by Costas Pitas; Editing by Rami Ayyub and Rod Nickel)
