PARIS - Plans to reallocate more of the taxing rights on the biggest, most profitable multinationals to the countries where their consumers are is lurching closer to collapse as a global deal proves elusive after months of talks.

A new international treaty divvying up taxing rights on the 100 biggest multinationals is supposed to form the first of a two-pillar revision of the rules for cross-border corporate taxation to reflect the rise of big digital companies.

The second pillar is an agreement to tax big international companies no less than 15%, which is gradually going live this year as countries adapt their tax codes.

WHAT IS THE STATE OF PLAY?

Officials from 127 countries and jurisdictions had aimed to agree on the terms of the new multilateral treaty by the end of June in order to sign it as soon as possible.

The treaty is supposed to allow about $200 billion of corporate profits to be taxed in the countries where the mostly U.S.-based digital companies do business.

It is also supposed to replace a patchwork of digital service taxes that many countries have adopted over concerns big internet groups were booking profits earned off their consumers in low-tax countries.

However, efforts to finalise terms have floundered on U.S. 'red-line' issues related to transfer pricing and the 'Amount B' system for simplifying the calculation of transfer pricing.

U.S. Treasury Secretary Janet Yellen has blamed India for holding out on the transfer-pricing issue, and said China has been 'all but absent' in the negotiations to finalize the deal.

WHAT HAPPENS NEXT?

In the absence of an agreement, a standstill deal on national digital services taxes could expire at the end of June, potentially reigniting trade tensions between the U.S. and some European allies.

Austria, Britain, France, Italy and Spain had agreed to freeze their digital service taxes while work was under way on the treaty and in exchange, the U.S. agreed to back off from a retaliatory tariff threat.

Even if in the best scenario countries are able to agree and sign a text, there is little chance it will be quickly ratified by a critical mass of countries required to go live.

As home to most of the companies considered to be in-scope, the U.S. must ratify the treaty for it to take effect, but that is unlikely with the two-thirds Senate majority all but impossible before the Nov. 5 U.S. elections.

WHAT ARE THE POSSIBLE OUTCOMES FURTHER OUT?

One way that the deal could yet come together is if the U.S. manages to include the treaty's ratification as part of a broader bipartisan overhaul of the U.S. tax code due next year when 2017 tax cuts under former president Donald Trump expire.

That would likely require support from Republican lawmakers, many of whom are reluctant to hand over taxing rights of U.S. companies to other countries.

If the treaty falls by the wayside, the European Union could proceed with a bloc-wide digital service tax in some form and other countries could follow suit, further complicating multinationals' cross-border tax obligations.

The stakes of the last-minute negotiations are high. The deal's failure could prompt several countries to reinstate their taxes on U.S. tech giants such as Apple, Alphabet's Google, and Amazon.com and risk punitive duties on billions of dollars in exports to the U.S.

Policy 2 min read US, India extend digital tax truce to Sunday as deadline approaches The stakes of the last-minute negotiations are high. The deal's failure could prompt several countries to reinstate their taxes on US tech giants such as Apple, Alphabet's Google, and Amazon.com and risk punitive duties on billions of dollars in exports to the US. The United States and India have extended a standstill agreement on US retaliation over India's digital-services tax until Sunday, aligning it with a fast-approaching deadline for a global deal to reallocate taxing rights on the world's biggest and most profitable companies, the US Treasury said on Friday.

In a brief announcement, the Treasury said that a November 2021 political compromise that expired March 31 would be extended through the end of the month, as negotiations on the 'Pillar 1' tax agreement continue.

The Pillar 1 deal is in danger of collapse, as the U.S., India and China have failed to agree on key elements of the deal related to calculation of transfer pricing to help determine local tax liabilities.

The extension of the US-India agreement also aligns it with the expiration of similar deals with six other countries that had enacted digital-services taxes: Austria, Britain, France, Italy, Spain and Turkey.

These countries suspended their digital-services taxes shortly after a two-pillar tax deal was struck in October 2021 by nearly 140 countries to impose a 15% global minimum corporate income tax and complete negotiation on reallocating some taxing rights on large multinationals to countries where they sell goods and services. This was meant to replace the digital-services taxes.

At the same time, the U.S. Trade Representative's office agreed to suspend planned trade retaliation against the digital taxes while negotiations were completed.

US negotiations are being led by the Treasury, where a spokesperson declined to comment on the state of negotiations.

A USTR spokesperson also declined to comment on next steps, but added: 'As we've said previously, we oppose digital-services taxes that unfairly target U.S. companies and the OECD/G20 Inclusive Framework negotiations offer the best path to address the challenges that digitalization of the economy poses to the international tax system.'

Treasury Secretary Janet Yellen told Reuters at a G7 finance meeting in May that India and China were hindering agreement on the alternative transfer-pricing mechanism known as 'Amount B,' but that talks were continuing.

Italy's finance minister also blamed the U.S. demands for the inability to agree on terms. Italy is seeking an extension of the U.S. standstill agreement and sources told Reuters earlier on Friday that Italy has asked Google to pay $1 billion in unpaid taxes.

Reporting by Leigh Thomas; additional reporting by David Lawder in Washington; Editing by Rod Nickel