United States—Tax Treatment for “Foreign Sales Corporations”
World Trade Organization, Arbitrator
WT/DS108/ARB (August 30, 2002)

- Written by Josh Lee, JD
Facts
The United States (plaintiff) adopted an exemption to income tax that applied to certain income earned by Foreign Sales Corporations. The United States argued that the exemption was permissible under the World Trade Organization (WTO) Subsidies and Countervailing Measures (SCM) Agreement as an effort to avoid potential double taxation. The United States lost a challenge to the exemption and adopted a new statute that accomplished the same exemption but was more explicit about the effort to avoid double taxation. The United States again lost a challenge to the exemption under that statute because the exemption was not limited to instances of double taxation. The European Communities (defendant), which had initiated the previous challenges, then asserted that the United States failed to remedy the violation within the proscribed deadline and sought to impose trade countermeasures with a value of approximately $4 billion. The United States sought an arbitration to determine whether the level of the countermeasures were appropriate under the SCM Agreement because the tax exemption only had a trade impact of approximately $1.11 billion on the European Communities.
Rule of Law
Issue
Holding and Reasoning ()
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