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TWN Info Service on WTO and Trade Issues (Oct15/06)
7 October 2015
Third World Network


Argentinian financial, taxation measures held WTO-illegal
Published in SUNS #8104 dated 2 October 2015


Geneva, 1 Oct (Kanaga Raja) -- A dispute panel of the World Trade Organisation (WTO) has largely ruled that some eight financial, taxation, foreign exchange and registration measures imposed by Argentina are inconsistent with its obligations under Article II: 1 of the General Agreement on Trade in Services (GATS).

These measures were imposed mostly on services and service suppliers from countries which Argentina terms "countries not cooperating for tax transparency purposes" (non-cooperative countries).

The classification of a country as a "country cooperating for tax transparency purposes" is provided for in Decree No. 589/2013.

In a ruling issued on Wednesday in a dispute raised by Panama against Argentina, the panel recommended that the Dispute Settlement Body (DSB) request Argentina to bring its measures into conformity with its obligations under the GATS.

While the panel found that all eight measures are inconsistent with Article II: 1 of the GATS, it however also found that three of these measures are not inconsistent with Article XVII of the GATS.

The panel also dismissed several of Panama's claims.

(The dispute panel was established on 25 June 2013, and since 1 January 2014, Argentina has considered Panama to be a cooperative country.)

The eight measures that were challenged by Panama are:

1. Tax treatment in the collection of gains tax on certain transactions involving non-cooperative countries (hereinafter withholding tax on payments of interest or remuneration);

2. Tax treatment imposed on entry of funds from non-cooperative countries (hereinafter presumption of unjustified increase in wealth);

3. Valuation of transactions with persons from non-cooperative countries (hereinafter transaction valuation based on transfer prices);

4. Criteria for applying deductions (hereinafter payment received rule for the allocation of expenditure);

5. Measures affecting trade in re-insurance and retro-cession services (hereinafter requirements relating to re-insurance services);

6. Measures affecting trade in financial instruments (hereinafter requirements for access to the Argentine capital market);

7. Requirements for the registration of companies, branches and shareholders of certain foreign service suppliers (hereinafter requirements for the registration of branches); and

8. Measures affecting the repatriation of investments (hereinafter foreign exchange authorization requirement).

In its panel request, Panama presented claims under the GATS and the GATT 1994 relating to eight measures applied by Argentina. Panama considers that each of the challenged measures violates one or more specific provisions of the GATS and/or the GATT 1994.

The provisions invoked by Panama under the GATS are Articles II: 1, XVI: 1, XVI: 2(a) and XVII. Under the GATT 1994, Panama alleges that certain measures are inconsistent with Articles I: 1, III: 4 and XI: 1.

According to the panel report, in its defence, Argentina replied, inter alia, that its measures are justified by the exceptions relating to services in Articles XIV(c) and XIV(d) of the GATS and paragraph 2(a) of the GATS Annex on Financial Services, which contains the so-called "prudential exception"; as well as the exception in Article XX(d) of the GATT 1994 with regard to the claims under this Agreement.

On Panama's claims under the GATS, the panel found that having determined that Panama has demonstrated that there is trade in services and that the eight measures at issue in the present dispute are measures "affecting trade in services" within the meaning of Article I: 1 of the GATS, the GATS is applicable to measure 1 (withholding tax on payments of interest or remuneration), measure 2 (presumption of unjustified increase in wealth), measure 3 (transaction valuation based on transfer prices), measure 4 (payment received rule for the allocation of expenditure), measure 5 (requirements relating to re-insurance services), measure 6 (requirements for access to the Argentine capital market), measure 7 (requirements for the registration of branches) and measure 8 (foreign exchange authorization requirement).

The panel found that all eight measures are inconsistent with Article II: 1 of the GATS "because they do not accord, immediately and unconditionally, to services and service suppliers of non-cooperative countries treatment no less favourable than that which they accord to like services and service suppliers of cooperative countries."

The panel however found that measure 2 (presumption of unjustified increase in wealth), measure 3 (transaction valuation based on transfer prices), and measure 4 (payment received rule for the allocation of expenditure) are not inconsistent with Article XVII of the GATS because they accord to services and service suppliers of non- cooperative countries treatment no less favourable than that which they accord to like Argentine services and service suppliers, in the relevant services and modes in which Argentina has undertaken specific commitments.

The panel found measure 1 (withholding tax on payments of interest or remuneration), measure 2 (presumption of unjustified increase in wealth), measure 3 (transaction valuation based on transfer prices), measure 4 (payment received rule for the allocation of expenditure), measure 7 (requirements for the registration of branches) and measure 8 (foreign exchange authorization requirement) are not covered under the exception of Article XIV(c) of the GATS because their application constitutes arbitrary and unjustifiable discrimination within the meaning of the chapeau of Article XIV of the GATS.

The panel also found that measure 5 (requirements relating to re-insurance services) and measure 6 (requirements for access to the Argentine capital market) are not covered by paragraph 2(a) of the Annex on Financial Services because they were not taken for prudential reasons within the meaning of that provision.

Further, in relation to Panama's claims under the GATS, the panel dismissed Panama's claim under Article XVI: 2(a) of the GATS because measure 5 (requirements relating to re-insurance services) is not covered by that provision, inasmuch as it does not regulate service suppliers within the meaning of Article XVI: 2(a) of the GATS.

The panel also dismissed Panama's claim under Article XVI: 1 of the GATS with respect to measure 5 (requirements relating to re-insurance services) because Panama has failed to establish a prima facie case of inconsistency in this respect.

Moreover, as the panel had found that measure 2 (presumption of unjustified increase in wealth), measure 3 (transaction valuation based on transfer prices) and measure 4 (payment received rule for the allocation of expenditure) are not inconsistent with Article XVII of the GATS because they accord to services and service suppliers of non-cooperative countries treatment no less favourable than that which they accord to like Argentine services and service suppliers, in the relevant services and modes in which Argentina has undertaken specific commitments, it refrained from ruling on whether these measures are covered under the exception provided for in Article XIV(d) of the GATS.

With respect to Panama's claims under the GATT 1994, the panel dismissed Panama's claim under Article I: 1 of the GATT 1994, because Panama has failed to demonstrate that measure 2 (presumption of unjustified increase in wealth) constitutes a "rule and formality in connection with exportation" or "a charge imposed on the international transfer of payments for ... exports" within the meaning of Article I: 1 of the GATT 1994.

The panel also dismissed Panama's claim under Article I: 1 of the GATT 1994, because Panama has failed to demonstrate that measure 3 (transaction valuation based on transfer prices) constitutes "a matter referred to in Article III: 4" or "a rule and formality in connection with exportation or importation" within the meaning of Article I: 1 of the GATT 1994.

Likewise, the panel dismissed Panama's claim under Article III: 4 of the GATT 1994, because Panama has failed to demonstrate that measure 3 (transaction valuation based on transfer prices) is a matter referred to in Article III: 4 of the GATT 1994.

The Panel also dismissed Panama's claim under Article XI: 1 of the GATT 1994, because measure 3 (transaction valuation based on transfer prices), being fiscal in nature, is not covered by that provision.

Finally, having dismissed Panama's claims under Article I: 1 of the GATT 1994 (in relation to measure 2 - presumption of unjustified increase in wealth - and measure 3 - transaction valuation based on transfer prices) and Articles III: 4 and XI: 1 of the GATT 1994 (in relation to measure 3 - transaction valuation based on transfer prices), the panel refrained from ruling on whether these measures are covered under the exception provided for in Article XX(d) of the GATT 1994. +

 


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