US Treasury Secretary Janet Yellen said on Friday she is trying to save a part of the global corporate tax deal focused on highly profitable multinational firms, but India is refusing to engage on issues important to US interests. Yellen mentioned on the sidelines of a G7 finance leaders meeting in Italy that China also has been “all but absent” in the negotiations to finalize “Pillar 1” of the OECD corporate tax deal reached in principle in 2021 that involves 140 countries.
“We are actively engaged in this negotiation,” Yellen said, aiming to meet an end-June deadline for the deal. “We’re committed to doing everything we possibly can to make it work.”
Pillar 1 Negotiations in Peril
Earlier on Friday, Italian Finance Minister Giancarlo Giorgetti told reporters that the Pillar 1 negotiations were set to fail, citing objections from the US, India, and China. The Pillar 1 negotiations are mainly aimed at reallocating the taxing rights on US-based digital giants, allowing about US$200 billion of corporate profits to be taxed in the countries where the companies do business.
A second pillar of the tax deal, the 15 percent global minimum tax on corporate profits, is separately being implemented by many countries, but the US Congress has not ratified it.
US Red Lines and India’s Stance
Yellen said there are two “red line” issues for the US in the talks, related to transfer pricing and the “Amount B” system for simplifying the calculation of transfer pricing. While most countries support the US position on these issues, “we have a problem with India. India will not engage with us,” she said.
A collapse of the Pillar 1 negotiations could prompt the return of digital services taxes in some countries and reignite potential trade tensions. Before the 2021 initial deal, US trade authorities threatened 25 percent tariffs on more than US$2 billion worth of imports from Italy, Austria, Britain, France, Spain, and Turkey, from cosmetics to handbags. These were put on hold after the countries agreed to suspend their digital taxes while details of the arrangement were worked out.
Italy wants to negotiate an agreement with Washington that would stop these tariffs, which are temporarily frozen until June, while also keeping its levy in place, an Italian official said on Friday.
