U.S. Treasury Secretary Janet Yellen said on Friday she was seeking to save parts of an international corporate tax agreement that focuses on highly profitable multinational companies, but India has refused to engage on an issue critical to U.S. interests.
Speaking on the sidelines of a meeting of G7 finance ministers in Italy, Yellen said China was “barely participating” in talks to finalize “pillar one” of the 140-nation OECD corporate tax agreement agreed in principle in 2021.
“We are actively engaged in these negotiations” to meet the end of June deadline for an agreement, Yellen said, “and we’re going to do everything we can to make sure this deal works.”
Earlier, Italian Finance Minister Giancarlo Giorgetti told reporters on Friday that Pillar 1 talks would fail due to opposition from the United States, India and China.
The Pillar 1 negotiations are primarily aimed at reallocating taxing powers to large US-based digital companies, with around $200 billion in corporate profits being taxed in the countries where they operate.
The second pillar of the tax agreement, a 15 percent international minimum tax on corporate profits, is implemented separately in many countries but has not been ratified by the U.S. Congress.
Yellen said there were two issues in the talks that were “red lines” for the United States, relating to transfer pricing and the “Amount B” regime, which simplifies transfer pricing calculations.
While most countries support the U.S. position on these issues, “we have problems with India. India does not want to engage with the U.S.,” she said.
A breakdown in Pillar 1 negotiations could lead to the reinstatement of digital services taxes in some countries, reigniting potential trade tensions.
Ahead of the initial 2021 deal, U.S. trade officials had threatened 25% tariffs on more than $2 billion in imports from Italy, Austria, Britain, France, Spain and Turkey, ranging from cosmetics to handbags. The tariffs were put on hold after the countries agreed to suspend digital taxes while they worked out the details of the deal.
Italian officials said Friday that Italy wanted to negotiate an agreement with the United States to suspend those tariffs, which are provisionally frozen until June, but keep the taxes in place.
