Discover how the US and India are reshaping global tax policies with their groundbreaking digital tax extension agreement! Uncover the reasons behind this pivotal decision and how it could affect tech giants and everyday consumers alike. Dive into the details of the negotiations and learn why this move is causing waves in financial markets worldwide.
The United States and India have extended a standstill agreement on US retaliation for India’s digital services tax until Sunday, aligning it with a rapidly approaching deadline for a global agreement to reallocate taxing rights on the world’s largest and most profitable corporations, the US Treasury said on Friday.
In a brief release, the Treasury stated that a November 2021 political compromise that expired on March 31 would be prolonged until the end of the month, while negotiations on the “Pillar 1” tax accord continue.
The Pillar 1 agreement is in danger of failing since the United States, India, and China have failed to agree on important components of the agreement, such as transfer pricing computation to help establish local tax duties.
The stakes in these last-minute negotiations are considerable. If the deal fails, multiple countries may reimpose tariffs on US tech behemoths such as Apple, Alphabet’s Google, and Amazon.com, risking hefty duties on billions of dollars in exports to the United States.
The extension of the United States-India agreement coincides with the expiration of similar agreements with six other nations that have imposed digital services taxes: Austria, Britain, France, Italy, Spain, and Turkey.
These countries suspended their digital services taxes shortly after nearly 140 countries reached a two-pillar tax agreement in October 2021 to impose a 15% global minimum corporate income tax and complete negotiations to reallocate some taxing rights to countries where large multinational corporations sell goods and services. This was intended to replace the digital services tax.
At the same time, the US Trade Representative’s office agreed to postpone planned trade retaliation against digital taxes until negotiations were finished.
The Treasury Department is in charge of US negotiations, and a spokeswoman declined to comment on the current stage of the talks.
A USTR spokesperson declined to comment on the next steps, but did say: “As we’ve previously stated, 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 preventing agreement on the alternative transfer-pricing mechanism known as “Amount B,” but that talks were still ongoing.
Italy’s finance minister similarly attributed the inability to reach an agreement to US demands. Italy is seeking an extension of the U.S. standstill agreement, and sources told Reuters earlier on Friday that Italy had requested Google to pay $1 billion in back taxes.
Recently, GreatGameIndia reported that at the G7 Summit attended by Prime Minister Narendra Modi, industrialized nations pledged support for the India-Middle East-Europe Economic Corridor (IMEC) as a counter to China’s Belt and Road Initiative.
