The United States and India have extended until Sunday a freeze on U.S. retaliatory measures on India's digital services tax, the U.S. Treasury Department said Friday, as a deadline looms for a global deal to reallocate tax rights to the world's largest and most profitable companies.

In a brief announcement, the Treasury Department said the political agreement reached in November 2021 and ending March 31 would be extended through the end of the month as negotiations on the “pillar one” fiscal deal continue.

The first pillar deal appears at risk of collapse because the United States, India and China have failed to agree on key elements of the deal regarding the calculation of transfer prices to help determine domestic tax obligations.

The risk of last-minute negotiations is very high. Failure of this agreement could prompt many countries to reimpose their tariffs on American tech giants like Apple, Google and Amazon, and risk imposing punitive tariffs on billions of dollars of exports to the United States.

The extension of the US-India deal also coincides with the end of similar agreements with six other countries that have imposed taxes on digital services: Austria, the UK, France, Italy, Spain and Turkey.

These countries suspended their digital services taxes immediately after a two-pillar tax deal was reached in October 2021 among nearly 140 countries to impose a global minimum corporate income tax of 15% and complete negotiations on the reallocation of certain tax rights to large multinational companies in certain countries. it sells goods and services. It is intended to replace the digital services tax.

At the same time, the U.S. Trade Representative's office agreed to postpone plans for trade retaliation against digital taxes until negotiations are concluded.

The negotiations are being led by the U.S. Treasury Department, and a spokesman declined to comment on the status of the negotiations.

A USTR spokesperson declined to comment on next steps, but added: “As we have said before, we oppose digital services taxes that unfairly target U.S. businesses, and the OECD and G20 Inclusive Framework negotiations are the best way forward to address the challenge of the … The digital transformation of the economy is impacting the international tax system.

U.S. Treasury Secretary Janet Yellen told Reuters at a G7 financial meeting in May that India and China were blocking an agreement on an alternative transfer pricing mechanism known as “Amount B,” but that negotiations were continuing.

Italy's finance minister also blamed U.S. demands for the failure to reach an agreement on terms. Italy is seeking to extend a U.S. debt freeze deal, and sources told Reuters on Friday that Italy had asked Google to pay $1 billion in unpaid taxes.

© Thomson Reuters 2024

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