The United States and India have agreed to extend a standstill agreement on U.S. retaliation over India’s digital-services tax until Sunday, in light of ongoing negotiations regarding a global deal to reallocate taxing rights on major multinational companies. The extension of the agreement comes as discussions around the “Pillar 1” tax agreement continue, with key elements related to transfer pricing causing disagreements between the U.S., India, and China. The failure of this deal could result in the reinstatement of taxes on U.S. tech giants and potential punitive measures on exports to the U.S.
The stakes of these negotiations are high, as the collapse of the Pillar 1 deal could have significant economic consequences for both the U.S. and other countries involved. Several countries, including Austria, Britain, France, Italy, Spain, and Turkey, have suspended their digital-services taxes following a global agreement to implement a 15% global minimum corporate income tax. The U.S. Trade Representative’s office has also agreed to suspend planned trade retaliation against digital taxes while negotiations are ongoing, reflecting the interconnected nature of the global tax system.
Treasury Secretary Janet Yellen has highlighted challenges in reaching an agreement, specifically pointing to India and China’s resistance to the “Amount B” transfer-pricing mechanism. Italy has also expressed frustration with U.S. demands, with reports indicating that the country has requested Google to pay $1 billion in unpaid taxes. As negotiations continue, the outcome of the discussions will impact the future taxation of large multinational companies and could have far-reaching implications for international trade and economic relations.