Yellen Delays Global Tax Deal Over Key Issues with India and China

US Delays Global Tax Deal with India and China Over Key Issues

Treasury Secretary Janet Yellen has announced that the US will not finalize a global tax deal until key issues are resolved with India and China. The deal, agreed upon in principle by around 140 countries, aims to reform the taxation of large multinational companies. However, negotiations have stumbled over details regarding transfer pricing rules, described by Yellen as critical to resolving uncertainty and tax disputes. The US is pushing for precise terms to secure approval from Congress, and Yellen stated that the US will not sign the convention until there is a broader agreement on the transfer pricing rules. The Italian Finance Minister, Giancarlo Giorgetti, acknowledged the impasse, stating that the group is in a "deadlock." Further delays in the agreement could lead to significant trade disputes and the imposition of new digital service taxes.

Key Takeaways

• Treasury Secretary Janet Yellen says US won't finalize global tax deal until India and China agree to key unresolved issues.
• Agreement aims to reform taxation of large multinational companies, eliminate low-tax havens with 15% minimum corporate tax.
• Unfinished portion of the deal involves sharing taxes on profits with countries where companies generate revenue.
• Negotiators have struggled to finalize details and get enough countries to sign a multilateral convention for implementation.
• Transfer pricing rules are a key unresolved issue, with most countries on board with an OECD proposal.
• Further delays in agreement could lead to significant trade disputes over digital services taxes.

Analysis

The US's decision to delay the global tax deal highlights ongoing disagreements with India and China over transfer pricing rules. This impasse may derail the agreement, which aims to reform taxation of multinational companies and eliminate low-tax havens with a 15% minimum corporate tax. Further delays could lead to significant trade disputes and the imposition of new digital service taxes. The Italian Finance Minister's acknowledgment of the deadlock indicates the urgency of resolving these issues. Countries like Ireland, which have historically benefited from low-tax regimes, also face potential consequences. In the long term, this development may lead to a more fragmented international tax landscape, with individual countries imposing their own digital taxes.

Did You Know?

• Transfer Pricing Rules: These rules determine how multinational corporations should price transactions between different parts of their company, known as "transfer prices". Disagreements over these rules have stalled negotiations, as the US pushes for precise terms to secure approval from Congress.
• Digital Service Taxes (DST): These are taxes imposed on revenues generated from digital activities or services, such as advertising and online marketplaces. Further delays in the global tax deal could lead to significant trade disputes over these taxes.
• OECD Proposal on Sharing Taxes on Profits: The Organization for Economic Cooperation and Development (OECD) has proposed a new framework for sharing taxes on profits among countries. This is a key unresolved issue in the global tax deal, as negotiators struggle to finalize details and get enough countries to sign a multilateral convention for implementation. The US is pushing for precise terms and broader agreement on this issue before signing the convention.