Income Tax Practices Maintained by the Netherlands

Other titles

Netherlands Income Tax (Source: GATT Analytical Index)


Third Parties

Products at Issue

Products at issue
Type of product
Not specified
Product sub-type

Related disputes


Key legal aspects

Legal basis
  • GATT Article XXIII:1
Claims raised
  • GATT Article XVI:4
Defences raised
  • n.a.


Type Panel
Chairperson L. J. Mariadason (Sri Lanka)
Other members Francesco Forte (Italy), William J. Falconer (New Zealand), T. Gabrielsson (Sweden), Allan R. Prest (United Kingdom)


Type Panel
Legal basis at issue
  • GATT Article XXIII:1
Claims at issue
  • GATT Article XVI:4
Defences at issue
  • n.a.
No of Pages (total / legal reasoning) 11
  • -
  • Inconsistency found
  • -


Outcome of the proceedings
Report adopted
Additional Info L/4425 (02/11/1976) Income Tax Practices Maintained by the Netherlands - Report of the Panel: The matter referred to the Panel by the United States concerned income tax practices maintained by the Netherlands. The US pointed out that the Netherlands, at least in practice, followed the territoriality principle of taxation and that, as a result, did not tax the export sales income of foreign branches or foreign sales subsidiaries of domestic manufacturing firms. Taxes on such income were for the most part permanently forgiven rather than merely deferred. This system afforded a remission or exemption of direct taxes in violation of the Netherlands' commitment under GATT Article XVI:4. The Panel found that even though the income tax practices may have been an incidental consequence of the Netherland's taxation principles rather than a specific policy intention, they nonetheless constituted a subsidy on exports because the benefits to exports did not apply to domestic activities for the internal market. In circumstances where different tax treatment in different countries resulted in a smaller total tax bill in aggregate being paid on exports than on sales in the home market, there was a partial exemption from direct taxes and the practices were covered by items (c) and (d) of the illustrative list of the 1960 Declaration. The contracting parties had agreed that the practices in that illustrative list were generally to be considered as subsidies in the sense of Article XVI:4. The Panel also considered that, from an economic point of view, there was a presumption that an export subsidy would lead to any or a combination of the following consequences in the export sector: (a) lowering of prices, (b) increase of sales effort and (c) increase of profits per unit. The Panel therefore concluded that the Netherland's tax practices in some cases had effects which were not in accordance with Dutch obligations under Article XVI: 4. Ultimately, the Panel found that there was a prima facie case of nullification or impairment of benefits which other contracting parties were entitled to expect under the General Agreement.

L/5271 (18/12/1981) Tax Legislation "At the meeting of the Council on 7-8 December 1981 [C/M/154], the Council adopted the four Panel Reports in documents L/4422, L/4423, L/4424 and L/4425, on the following understanding: "The Council adopts these reports on the understanding that with respect with these cases, and in general, economic processes (including transactions involving exported goods) located outside the territorial limits of the exporting country need not be subject to taxation by the exporting country and should not be regarded as export activities in terms of Article XVI:4 requires that arm's-length pricing be observed, i.e., prices for goods in transactions between exporting enterprises and foreign buyers under their or the same control should for tax purposes be the prices which would be charged between independent enterprises acting at arm's length. Furthermore, Article XVI:4 does not prohibit the adoption of measures to avoid double taxation of foreign source income." Following the adoption of these reports the Chairman noted that the Council's decision and understanding does not mean that the parties adhering to Article XVI:4 are forbidden from taxing the profits on transactions beyond their borders, it only means that they are not required to do so. He noted further that the decision does not modify the existing GATT rules in Article XVI:4 as they relate to the taxation of exported goods. He noted also that this decision does not affect and is not affected by the Agreement on the Interpretation and Application of Articles VI, XVI and XXIII. Finally, he noted that the adoption of these reports together with the understanding does not affect the rights and obligations of contracting parties under the General Agreement."