Global tax deal: With MLC deadline gone, DSTs may be reinstated on tech cos

The Multilateral Convention (MLC) for Pillar 1 of the landmark global tax deal has not been signed by the last date of June 30 and could lead to the digital services taxes making a comeback and some tensions within the Big Tech players, experts told Business Standard on Monday.

After the two-pillar agreement was introduced in October 2021, a political deal was reached between the USA and several European countries including Austria, France, Italy, Spain, and the UK, to suspend unilateral digital services taxes (DSTs) on US tech giants such as Apple, Alphabet's Google, and Amazon.com until the implementation of the first pillar.

It was extended to June 30, as per an updated joint statement released in February 2024. India and the US also announced the extension of a standstill agreement on US retaliation over the former's digital services tax until June 30.

Now, the self-imposed deadline has passed.

"This failure will further delay the implementation of Pillar 1 and could potentially lead to the resurgence of digital services taxes in various countries during the transition period, which shall reignite the trade tensions between the USA and those nations," said Mitesh Jain, Partner, Economic Laws Practice.

"While there is a clear intent for the Inclusive Framework members to implement Pillar 1 MLC, however, the delay is likely to result in new/ continued unilateral measures by various countries for levy of digital service tax and potential retaliation by target countries in the form of imposition of new trade barriers," said Naveen Aggarwal, Partner of Tax at KPMG in India.

Another tax expert, privy to the developments, added, "The EU countries may soon start asking US tech giants to pay the unpaid taxes soon if the deal is not reached."

He also said that this was expected by the Indian government and so its reaction may not be very pronounced.

Riaz Thingna, Partner at GT Bharat, said, "It is expected that there will be a deliberation at a global level on how Pillar 1 will move forward and a realistic assessment should be shared with all stakeholders soon."

India, according to Jain, may extend the imposition of a 2 per cent equalisation levy until a resolution is reached with the US government.

Pillar 2, on the other hand, has made some progress and around 40 countries have already started applying the rules under it from 2024.

According to experts, there may be some announcements around the pillar, which brings in a minimum 15 per cent corporate tax rate, in the upcoming Budget.

"Overall the fate of extended transitional credit deadline for digital service tax post June 30 remains uncertain," Aggarwal said.