United states tax treatment for "foreign sales corporations"



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1WT/DS108/RW2, 30 September 2005.

2WT/DS108/R; WT/DS108/AB/R.

3WT/DS108/RW; WT/DS108/AB/RW.

4Original Panel Report, US – FSC, para. 8.1. A detailed description of the FSC measure is contained in paragraphs 2.1-2.8 of the Original Panel Report, and in paragraphs 11-18 of the Original Appellate Body Report, in US – FSC.

5Original Panel Report, US – FSC, para. 8.8.

6WT/DSB/M/90, paras. 6-7. See also Panel Report, para. 1.1.

7United States Public Law 106-519, 114 Stat. 2423 (2000).

8Panel Report, US – FSC (Article 21.5 – EC), para. 1.5. A detailed description of the ETI Act is contained in paragraphs 2.2-2.8 of the Panel Report, and in paragraphs 15-25 of the Appellate Body Report, in US – FSC (Article 21.5 – EC).

9WT/DS108/16.

10WT/DS108/19.

11Panel Report, US – FSC (Article 21.5 – EC), para. 9.1(e).

12Appellate Body Report, US – FSC (Article 21.5 – EC), para. 257.

13On 17 November 2000, the European Communities had requested authorization to take "appropriate countermeasures" and to suspend concessions pursuant to Article 4.10 of the  SCM Agreement  and Articles 22.2 and 22.7 of the DSU for an amount of US$ 4043 million per year. (WT/DS108/13) The United States objected to the appropriateness of the countermeasures proposed by the European Communities, as well as to the level of suspension of concessions proposed by the European Communities, and requested that the matter be referred to arbitration. The arbitrator, acting pursuant to Article 4.11 of the SCM Agreement and Article 22.6 of the DSU, determined that the countermeasures sought by the European Communities "would constitute appropriate countermeasures within the meaning of Article 4.10 of the SCM Agreement". (Decision by the Arbitrator,
US – FSC (Article 22.6 – US), para. 8.1)

14Panel Report, para. 1.6.

15More specifically, to transactions made in the ordinary course of trade or business occurring pursuant to a binding contract between the taxpayer and an unrelated person, which contract was in effect on
17 September 2003 and at all times thereafter. (Ibid., footnote 29 to para. 2.16)

16Ibid., para. 2.17. These transactions are transactions pursuant to a binding contract between the FSC and an unrelated person, which contract was in effect on 30 September 2000. (Ibid., para. 2.12)

17Request for the Establishment of a Panel by the European Communities, WT/DS/108/29 (attached as Annex III to this Report).

18WT/DS108/30.

19Panel Report, para. 7.60-7.61.

20Ibid., para. 8.1. See also para. 7.65.

21Panel Report, para. 8.2.

22WT/DS108/32 (attached as Annex I to this Report).

23WT/AB/WP/5, 4 January 2005.

24Pursuant to Rule 21(1) of the Working Procedures.

25WT/DS108/33 (attached as Annex II to this Report).

26Pursuant to Rule 23(3) of the Working Procedures.

27Pursuant to Rules 22 and 23(4) of the Working Procedures.

28Pursuant to Rule 24(1) of the Working Procedures.

29Pursuant to Rule 24(2) of the Working Procedures.

1United States' appellant's submission, para. 46.

2Ibid., para. 50.

3Ibid., para. 51. (footnote omitted)

4United States' appellant's submission, para. 51.

5Ibid., para. 52.

6Ibid., para. 53.

7Ibid., para. 54.

8Ibid.

9United States' appellant's submission, heading III.A.

10Ibid., para. 20.

11Ibid., para. 21.

12Ibid.

13Ibid., para. 24.

14United States' appellant's submission, para. 24. (footnote omitted)

15Ibid. (referring to Article 4.7 of the SCM Agreement).

16Ibid., para. 26.

17Ibid.

18Ibid., para. 29.

19Ibid. The United States stated at the oral hearing that the "systemic issue" as to whether an Article 21.5 panel has the authority to make a new recommendation under Article 4.7 of the SCM Agreement, in respect of the measure taken to comply before its consideration, need not be addressed in this dispute.

20United States' appellant's submission, para. 33 (referring to Panel Report, para. 7.56).

21United States' appellant's submission, para. 34.

22Ibid., para. 40.

23Ibid., para. 41.

24European Communities' appellee's submission, para. 64.

25Ibid., para. 66.

26Ibid., para. 70.

27Ibid., para. 71.

28Ibid., para. 77. (original underlining)

29Ibid., para. 78.

30This finding is contained in paragraph 9.1(e) of the Panel Report, and in paragraph 256(f) of the Appellate Body Report, in US – FSC (Article 21.5 – EC).

31European Communities' appellee's submission, para. 35.

32Ibid., para. 37.

33Ibid., para. 28.

34Ibid., para. 41.

35Ibid.

36European Communities' appellee's submission, para. 43 (referring to Appellate Body Report, Brazil – Aircraft (Article 21.5 – Canada), para. 82(a) and (b)).

37Ibid., para. 46.

38Ibid., para. 53 (referring to Appellate Body Report, US – FSC (Article 21.5 – EC), para. 257).

39European Communities' appellee's submission, para. 55.

40European Communities' other appellant's submission, para. 6.

41European Communities' other appellant's submission, para. 7 (referring to Panel Report, paras. 7.49 and 8.2).

42Ibid., para. 24 (referring to Panel Report, para. 7.46).

43Ibid., para. 27.

44United States' appellee's submission, para. 17 (referring to European Communities' other appellant's submission, para. 12, in turn quoting Appellate Body Report, US – FSC (Article 21.5 – EC), para. 229, which reads:  "Article 4.7 of the SCM Agreement requires prohibited subsidies to be withdrawn 'without delay', and provides that a time-period for such withdrawal shall be specified by the panel.").

45Ibid., para. 20 (referring to Panel Report, US – FSC (Article 21.5 – EC), para. 9.1(e)).

46Ibid., para. 22.

47Ibid.

48Ibid.

49Ibid., para. 25.

50Ibid. (referring to European Communities' other appellant's submission, para. 6).

51Ibid., para. 27.

52The United States submits, specifically, that the European Communities refers to submissions, oral statements, and responses to Panel questions that were never served on the third parties. Although the opening statement of the European Communities was included as an annex to the Panel Report, the closing statement and responses to questions were not. Nor were these materials posted on the European Communities' website.

53Australia's third participant's submission, para. 9.

54Ibid.

55Ibid., para. 6.

56Ibid., para. 7.

57Ibid.

58Brazil's third participant's submission, para. 19.

59Ibid., para. 9.

60Ibid., para. 12 (referring to Panel Report, para. 7.31 (original emphasis)).

61Ibid., para. 17.

1United States Public Law 106-519, 114 Stat. 2423 (2000).

2Panel Report, para. 7.87.

3Ibid., para. 7.65. See also para. 8.1.

1United States' appellant's submission, para. 57; United States' Notice of Appeal, WT/DS108/32 (attached as Annex I to this Report), para. 2.

2Panel Report, para. 7.72.

3Ibid., para. 7.73. (original emphasis)

4Ibid., para. 7.76. (footnote omitted)

5Panel Report, para. 7.78.

6Ibid., para. 7.80.

7Ibid.

8Ibid., para. 7.82. (original emphasis)

9Ibid. (emphasis added)

10Ibid.

11Ibid., para. 7.83.

12Ibid. (referring to Appellate Body Report, EC – Bananas III, para. 143).

13Panel Report, para. 7.83 (referring to Appellate Body Reports, US – Carbon Steel, para. 127).

14Ibid., para. 7.85.

15Ibid., para. 7.86.

16Ibid.

17United States' appellant's submission, para. 50. (original emphasis)

18Ibid., para. 51.

19Ibid., para. 52.

20Ibid., para. 54.

21Ibid.

22Ibid., para. 56.

23In  Mexico – Corn Syrup (Article 21.5 – US), the Appellate Body made certain findings assuming, arguendo, that Article 6.2 applied in the context of Article 21.5 proceedings. The Appellate Body did not make a finding whether Article 6.2  actually applied  in the context of Article 21.5 proceedings and, if so, to what extent. (See Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), paras. 52-53 and 67)

24In response to questioning at the oral hearing, both participants explicitly agreed with the general applicability of Article 6.2 in Article 21.5 proceedings, although they had some differences on the specific details of the requirements of Article 6.2 in Article 21.5 proceedings.

25Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 67.

26In this respect, we recall that the Appellate Body stated, in  EC – Bed Linen (Article 21.5 – India), that the measure taken to comply may be inconsistent with WTO law "in ways different from" the original measure. (Appellate Body Report, EC – Bed Linen (Article 21.5 – India), para. 79) See also Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 40.

27The European Communities' panel request explicitly refers to the DSB recommendations and rulings in the original and first Article 21.5 disputes in section 1 ("The History of the Dispute"), in section 2 ("The Subject of the Dispute"), and in section 3 ("Request for the Establishment of a Panel"). (Request for the Establishment of a Panel by the European Communities, WT/DS/108/29 (attached as Annex III to this Report))

28In section 2 of the panel request ("The Subject of the Dispute"), the European Communities states: "Section 101 of the JOBS Act purports to repeal the ETI Act (Section 101(a))".

29The United States' appeal concerning the Panel's terms of reference is limited to Section 5 of the ETI Act. Furthermore, the United States submits: "Section 2 [of the European Communities' panel request]  clearly identifies  as the subject of the dispute [S]ections 101(d) and (f) of the [Jobs Act]". (United States' appellant's submission, para. 48) (emphasis added)

30Request for the Establishment of a Panel by the European Communities, section 3. (emphasis added)

31Panel Report, para. 7.68.

32Appellate Body Report, US – Carbon Steel, para. 127.

33European Communities' first written submission to the Panel, para. 58; Panel Report, p. A-14.

34European Communities' first written submission to the Panel, para. 59; Panel Report, p. A-14.

35We wish to caution—as did the Panel in this case—that a panel examining a complaining party's
first written submission for purposes of confirming the meaning of that party's panel request must bear in mind that a deficient panel request cannot be "cured" subsequently in the first submission. (Appellate Body Report, EC – Bananas III, para. 143 (referring to the requirement under Article 6.2 of the DSU to provide "a brief summary of the legal basis of the complaint"))

36We also note that the European Communities argues that the responding party in compliance proceedings may be expected to be aware of the measures that were covered by the DSB recommendations or rulings in the original or first Article 21.5 proceedings. (See also Panel Report, para. 7.86)

37Given our view that the European Communities satisfied the minimum requirement of Article 6.2, read in the light of Article 21.5, we do not consider it necessary to address the issue whether the United States may have been prejudiced by the alleged lack of clarity in the European Communities' panel request. In this respect, we note that the United States agreed, at the oral hearing, with the proposition that, once a measure is determined to properly fall within a panel's terms of reference, there is no need to demonstrate, in addition, the presence or absence of prejudice to the responding party.

1Panel Report, para. 7.65; United States' Notice of Appeal, para. 1.

2United States' Notice of Appeal, para. 1.

3United States' appellant's submission, para. 3.

4Ibid., para. 4.

5 Original Panel Report, US – FSC, paras. 8.3 and 8.8. At its meeting held on 12 October 2000, the DSB agreed to modify the time period so that it expired on 1 November 2000. (Panel Report, para. 1.1)

6 Panel Report, US – FSC (Article 21.5 – EC), para. 8.170.

7Appellate Body Report, US – FSC (Article 21.5 – EC), para. 257.

8 First, the "transition provision", which provides for a two-year continuation of a percentage of ETI benefits (80 per cent in 2005 and 60 per cent in 2006); and secondly, the "grandfathering provision", which exempts certain transactions indefinitely from the repeal of the ETI tax scheme.

9This grandfathering provision has not been repealed or modified by the Jobs Act. (Panel Report, para. 7.80)

10Ibid., para. 7.11; United States' appellant's submission, para. 41.

11Panel Report, para. 7.60; United States' response to questioning at the oral hearing.

12Panel Report, paras. 7.65 and 8.1.

13Ibid., para. 8.2. See also paras. 7.40-7.41 and 7.44.

14United States' appellant's submission, para. 3.

15United States' statement at the oral hearing.

16United States' appellant's submission, para. 26.

17Ibid., paras. 10-11.

18European Communities' appellee's submission, para. 46.

19European Communities' appellee's submission, para. 56.

20Appellate Body Report, US – FSC (Article 21.5 – EC), para. 257.

21European Communities' appellee's submission, para. 53.

22As noted earlier, Article 17.14 of the DSU provides that Appellate Body reports, including panel findings upheld or modified by the Appellate Body, are to be unconditionally accepted by the parties to the dispute upon adoption by the DSB.

23We recall that the Appellate Body has previously held that Article 21.5 proceedings involve not  any measure taken by a WTO Member, but rather "measures taken to comply with the recommendations and rulings". (Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 36) We also recall the findings of the Appellate Body and the criteria identified by the Appellate Body to determine when a measure has a "particularly close relationship to the declared 'measure taken to comply'". (Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 77) There are a number of dimensions that would have to be examined to determine whether a challenged subsidy falls within the scope of "measures taken to comply". We note that the issue of what constitutes "measures taken to comply" that can be examined in an Article 21.5 proceeding is not before us in this appeal.

24We note that Section 101(a) of the Jobs Act repeals the ETI Act.

25Panel Report, para. 7.46.

26Ibid., para. 7.86; Appellate Body Report, Mexico – Corn Syrup (Article 21.5 – US), para. 121.

27Panel Report, para. 7.52.

28United States' appellant's submission, footnote 36 to para. 38. The United States confirmed this in response to questioning at the oral hearing.

29The United States does not dispute that it is under an obligation to withdraw fully the ETI subsidy by virtue of Articles 3.1(a) and 3.2 of the  SCM Agreement.

30We note that the United States "does not contest that it was under an obligation [deriving from Article 3 of the SCM Agreement] to remedy these inconsistencies with its WTO Agreement obligations", regardless of whether or not there is a specific Article 4.7 recommendation. (United States' appellant's submission, para. 41)

31Panel Report, para. 7.55. See also Panel Report, US – FSC (Article 21.5 – EC), para. 9.1(e)); and Appellate Body Report, US – FSC (Article 21.5 – EC), para. 257.

32United States' appellant's submission, para. 26.

33Ibid., para. 29.

34Ibid.

35European Communities' appellee's submission, para. 29.

36Ibid.

37Panel Report, para. 7.36.

38Appellate Body Report, Canada – Aircraft (Article 21.5 – Brazil), para. 40.

39See supra, para. 10.

40Appellate Body Report, US – Softwood Lumber IV (Article 21.5 – Canada), para. 68.

41Panel Report, para. 7.36. (footnote omitted)

42Ibid. (original italics)

1European Communities' other appellant's submission, para. 3.

2Ibid., para. 29.

3Ibid., para. 4; European Communities' response to questioning at the oral hearing.

1Panel Report, para. 7.87.

2See, for example, Panel Report, paragraphs 7.39, 7.41 ‑ 7.44, 7.51 ‑ 7.58, 7.62 ‑ 7.65.

3See, for example, Panel Report, paragraphs 7.61, 7.68, 7.72 ‑ 7.73, 7.76, 7.78 ‑ 7.87.

4 WT/DS108/RW2, circulated on 30 September 2005.

5 Which the Panel did not address in its Report (see WT/DS108/29, 14 January 2005).

6 On which the Panel exercised judicial economy (see e.g. Panel Report, footnote 84).

7 See e.g. Panel Report, paras. 7.37-7.46, 7.49, 7.52-7.58, 8.2.




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