GD/83
United States - Income Tax Legislation (DISC)
Other titles
US DISC (Source: GATT Analytical Index)
Products at Issue
| Products at issue |
General
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| Type of product |
Not specified
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| Product sub-type |
Related disputes
| GATT | |
| WTO |
Key legal aspects
| Legal basis |
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| Claims raised |
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| Defences raised |
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Adjudicators
| 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 |
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| Claims at issue |
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| Defences at issue |
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| No of Pages (total / legal reasoning) | 17 |
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Timeline
| Request for consultations |
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| Request for establishment | |
| Establishment | |
| Composition | |
| Report | |
| Adoption of report |
Outcome
| Outcome of the proceedings |
Report adopted
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| Additional Info | L/4422 (02/11/1976) United States - Tax Legislation [on Domestic International Sales Corporations] (DISC) - Report of the Panel: The Panel was tasked with examining the matter referred by the European Communities relating to the United States tax legislation on Domestic International Sales Corporations (DISC). The EC argued that the declared objective of the DISC system was to provide a substantial stimulus to US producers to increase their export sales and that it constituted an export subsidy incompatible with the US obligations under GATT Article XVI:4. The Panel considered that the DISC legislation conferred a tax benefit and that this benefit was essentially related to exports. It was intended, in its own terms, to increase US exports and, as its benefits arose as a function of profits from exports, it had to be regarded as an export subsidy. The Panel further noted that the tax deferral did not attract the interest component of the tax normally levied for late or deferred payment and therefore, to this extent, the DISC legislation constituted a partial exemption which was covered by paragraphs (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 DISC legislation in some cases had effects which were not in accordance with the United States' 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." C/M/161 (29/10/1982) Council - Minutes of Meeting (01/10/1982) United States Tax Legislation (DISC) - Follow-up on the report of the Panel : US Government decided to propose to the Congress an amendment of the DISC legislation to address the concerns expressed in the Council. |