India Refuses to Sign Global Tax Deal Until Concerns Addressed

India will not commit to a global corporate tax agreement focused on highly profitable multinational companies unless its concerns about dispute resolution and withholding tax are addressed, a finance ministry official stated on Thursday.

Key Issues in the "Pillar 1" Arrangement

The "Pillar 1" arrangement, part of a 2021 global tax agreement, aims to replace unilateral digital services taxes (DSTs) with a new system to share taxing rights on multinational companies like Google, Amazon, and Apple. Revenue Secretary Sanjay Malhotra, a top finance ministry official, noted that India is "constructively engaging" with other countries to finalize "Pillar 1" and is optimistic about reaching a conclusion soon. However, he emphasized, "It cannot be at the cost of our own interests."

US-India Negotiation Stalemate

In May, U.S. Treasury Secretary Janet Yellen accused India of stalling negotiations on issues important to the U.S. Malhotra responded by stating that India cannot agree to the current formulation unless its suggestions are accepted and a reasonable solution is reached. India is particularly against subjecting tax-related disputes to international arbitration.

India's Concession and Ongoing Talks

As a conciliatory gesture, India proposed to remove a 2% equalization duty on digital service providers, which costs the Indian government around 25 billion rupees ($300 million) annually. Talks continue beyond the June 30 deadline, with governments now looking to the Group of 20 finance leaders' meeting in Brazil for progress.

High Stakes in Global Tax Negotiations

Failure to agree on final terms could lead several countries to reinstate their taxes on U.S. tech giants, risking punitive duties on billions of dollars in exports to the U.S. While many countries are already implementing "Pillar 2," which sets a global minimum tax of 15% on multinationals, it has yet to be ratified by the U.S. India has established a panel to develop rules for implementing "Pillar 2."

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