Yellen says US isn’t ready to sign pending global tax agreement

Treasury Secretary Janet Yellen said the U.S. won’t sign an agreement to finalize a still-pending global tax deal until India and China agree to key unresolved issues.

“India, in particular, has been a holdout and China has not really engaged very much in these negotiations at all,” Yellen told reporters Saturday on the sidelines of a Group of Seven finance ministers meeting in Stresa, Italy. “We certainly need India and China to come on board in order to get this done.”

About 140 countries signed on to the outline of a groundbreaking pact in 2021 to reform the way large multinational companies are taxed. Part of the agreement creates a 15% minimum corporate tax to eliminate low-tax havens. 

A second portion, which remains unfinished, would take some of the taxes on profits that big companies pay in their headquarter countries and share that with countries where the companies generate revenue.

But negotiators, led by the OECD, have struggled to polish off the details and get enough countries to sign a multilateral convention on implementing the deal. 

The Biden administration has been an enthusiastic backer, but has pressed hard to lock in precise terms in an effort to secure approval by Congress that’s needed for the U.S. to implement the agreement.

Once the U.S. agrees to sign the convention, the Biden administration plans to bring the deal to the US Senate, a senior Treasury official told Bloomberg News.

On Saturday, Yellen said the unresolved details revolve around rules governing transfer pricing.

“It’s an area where there’s a lot of uncertainty for multinationals, and it’s an area where there’s tremendous tax disputes,” she said. “It is critical to us and we have made this clear for a very long time.”

The Treasury chief said “most countries are on board” with an OECD proposal to resolve the question. But she said the U.S. won’t sign the convention until there’s a broader agreement on the transfer pricing rules.

Italian Finance Minister Giancarlo Giorgetti acknowledged an impasse in talks.

“We are in a stalemate, a deadlock,” he said at a news conference Saturday. “We really hope we can do better.”

Speaking Friday on Bloomberg Television, OECD Secretary General Mathias Cormann said the group continues to work toward getting the convention signed by the end of June.

Further delays risk causing a wider breakdown on the rules over taxation that could result in significant trade disputes. Many countries are threatening to impose new digital services taxes, a type of tax that many tech giants object to and which the tax-sharing agreement was meant to eliminate.

In the past, digital taxes led to a near trade war between the U.S. and several countries, including close European allies.