Negotiations on Global Tax Deal Extended as U.S. and India Agree to Standstill Agreement

The United States and India have extended a standstill agreement on U.S. retaliation over India’s digital-services tax until Sunday, aligning it with a fast-approaching deadline for a global deal to reallocate taxing rights on the world’s biggest and most profitable companies, the U.S. Treasury said on Friday.

The Pillar 1 deal is in danger of collapse, as the U.S., India, and China have failed to agree on key elements of the deal related to the calculation of transfer pricing to help determine local tax liabilities.

The extension of the U.S.-India agreement also aligns it with the expiration of similar deals with six other countries that had enacted digital-services taxes: Austria, Britain, France, Italy, Spain, and Turkey.

These countries suspended their digital-services taxes shortly after a two-pillar tax deal was struck in October 2021 by nearly 140 countries to impose a 15% global minimum corporate income tax and complete negotiation on reallocating some taxing rights on large multinationals to countries where they sell goods and services. This was meant to replace the digital-services taxes.

At the same time, the U.S. Trade Representative’s office agreed to suspend planned trade retaliation against the digital taxes while negotiations were completed.

The stakes of the last-minute negotiations are high, as the failure of the deal could prompt several countries to reinstate their taxes on U.S. tech giants such as Apple, Alphabet’s Google, and Amazon.com, and risk punitive duties on billions of dollars in exports to the U.S.

Stay tuned for further updates on this developing story.