WTO Rules on Direct Taxation

摘要

Hitherto, rules concerning international trade and taxation have, by and large, evolved quite separately. The GATT/WTO Agreements are multilateral, requiring MFN as well as national treatment and subject to binding dispute settlement procedures. By contrast, international taxation, if not decided unilaterally, is agreed bilaterally, requiring national treatment and subject to non-binding (diplomatic) dispute settlement. This separate evolution of the two sets of rules is rather surprising in view of the many parallels and overlaps between international trade and taxation and the apparent analytical equivalence between cross-border flows of products and flows of factors. However, the widely-followed ruling by the WTO's Dispute Settlement Body against the US concerning the latter's FSC/ETI scheme, which led to the largest retaliation award ever authorised in a dispute at the WTO, confirmed (if there were ever any doubt) that, generally speaking, direct taxes, like indirect taxes (including tariffs), are subject to the WTO rules, notwithstanding efforts by tax authorities to secure specific exemptions for certain direct tax measures. This ruling reconfirmed the traditional distinction under international trade rules between direct and indirect taxes, particularly with respect to how such taxes should be treated under the subsidy and border tax adjustment rules of the WTO. The WTO's ruling prompted the US Congress finally to pass legislation in late 2004 to repeal the scheme as part of a larger overhaul of the US corporate tax. The most recent disputes between the US and the EC over assistance to large civil aircraft also encompass direct tax measures. It would not be surprising if other WTO-inconsistent direct tax measures were identified in the future, leading to further disputes among WTO Members. WTO rules, which are agreed by consensus, can thus be expected to continue to be an important factor in determining how Members shape their tax policies, as they undoubtedly will want to avoid having them successfully challenged in the WTO.