‘India and China hindering ‘Pillar 1’ tax deal,’ says US Treasury’s Janet Yellen

Yellen told Reuters in an interview 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,” to meet an end-June deadline for the deal, Yellen told Reuters. “We’re committed to doing everything we possibly can to make it work.”

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Earlier on Friday, Italian Finance Minister Giancarlo Giorgetti told reporters that the Pillar 1 negotiations were set to fail, citing objections from the U.S., India and China.

The Pillar 1 negotiations primarily focus on redistributing the taxing authority concerning US-based digital giants, potentially enabling around $200 billion of corporate profits to be taxed in the nations where these companies operate.

In addition to Pillar 1, the tax deal includes a second pillar involving the implementation of a 15% global minimum tax on corporate profits, which many countries are independently adopting. However, the ratification of this measure by the US Congress is still pending.

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.

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While most countries support the US position on these issues, “we have a problem with India. India will not engage with us,” she said.

The breakdown of the Pillar 1 negotiations could lead to the reinstatement of digital services taxes in certain countries, potentially sparking renewed trade tensions.

Before the initial deal in 2021, US trade authorities had warned of imposing 25% tariffs on over $2 billion worth of imports from Italy, Austria, Britain, France, Spain, and Turkey, covering products ranging from cosmetics to handbags.

However, these threats were paused after the involved countries agreed to suspend their digital taxes while awaiting the resolution of the agreement’s specifics.

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 told Reuters on Friday.

(With inputs from Reuters)

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Published: 25 May 2024, 08:10 AM IST