US, India Extend Digital Tax Truce as Global Deal Deadline Looms

India IPO

Updated Jun 29, 2024

US, India extend digital tax truce to Sunday as deadline approaches img

In a brief announcement, the Treasury said that a November 2021 political compromise that expired March 31 would be extended through the end of the month, as negotiations on the "Pillar 1" tax agreement continue.

US, India Extend Digital Tax Truce as Global Deal Deadline Looms

The United States and India have extended their standstill agreement on U.S. retaliation over India's digital-services tax until Sunday, aligning with the approaching deadline for a global tax deal on major multinational companies, as announced by the U.S. Treasury on Friday.

The Treasury's brief statement mentioned that the political compromise from November 2021, which expired on March 31, would now extend to the end of the month while negotiations on the "Pillar 1" tax agreement continue.

The Pillar 1 deal is under threat as the U.S., India, and China struggle to agree on key aspects related to transfer pricing calculations for local tax liabilities.

The failure of this deal could lead several countries to reinstate their taxes on U.S. tech giants like Apple, Google, and Amazon, potentially triggering punitive duties on billions of dollars of exports to the U.S.

The extension of the U.S.-India agreement coincides with similar agreements with six other countries—Austria, Britain, France, Italy, Spain, and Turkey—that had also enacted digital-services taxes.

These countries had suspended their digital taxes following a two-pillar tax deal in October 2021, involving nearly 140 countries agreeing to a 15% global minimum corporate income tax and reallocating taxing rights on large multinationals. The aim was to replace digital-services taxes.

The U.S. Trade Representative's office had also suspended planned trade retaliation against the digital taxes during these negotiations.

The Treasury spokesperson did not comment on the negotiations' progress, and a USTR spokesperson reiterated their opposition to digital-services taxes targeting U.S. companies, emphasizing the OECD/G20 Inclusive Framework negotiations as the best solution.

Treasury Secretary Janet Yellen noted in May that India and China were blocking agreement on the "Amount B" transfer-pricing mechanism, but discussions were ongoing. Italy's finance minister blamed U.S. demands for the lack of agreement and sought an extension of the U.S. standstill agreement. Italy has also reportedly asked Google to pay $1 billion in unpaid taxes.