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EU Claims WTO Victory In Boeing Tax Break Case

by Ulrika Lomas,, Brussels

01 December 2016

The EU has claimed victory in a WTO dispute with the US over tax treatment afforded by the state of Washington to Boeing.

In December 2014, the EU requested consultations with the US on "conditional tax incentives" established by the state of Washington in relation to the development, manufacture, and sale of large civil aircraft. The EU alleged that the measures are prohibited subsidies, inconsistent with the WTO's Subsidies and Countervailing Measures (SCM) Agreement.

Following a further EU request, a WTO panel was set up in September 2015. The panel's final report was published on November 28.

The dispute concerned legislation that amended and extended various tax incentives for the aerospace industry. In particular, the EU raised objections to seven separate incentives, including a reduced business and occupation tax rate, credits against business taxation, and exemptions from various other taxes in the state of Washington.

While the panel did not rule in favor of the EU on all arguments, it did say that "in each of the contested measures, there is a financial contribution by the Washington state government, and that a benefit is thereby conferred. As a result, the measures are deemed to constitute subsidies under the SCM Agreement."

However, the WTO said that the EU had not demonstrated that the measures are de jure (by right) contingent upon the use of domestic, rather than imported, goods.

Nevertheless, it did conclude that the reduced business and occupation tax rate for the manufacturing or sale of commercial airplanes under the Boeing 777X program – one of seven contested – is de facto contingent upon the use of domestic over imported goods. It said that this measure is inconsistent with the SCM Agreement.

Reacting to the ruling, EU Trade Commissioner Cecilia Malmström said: "Today's WTO ruling is an important victory for the EU and its aircraft industry. The panel has found that the additional massive subsidies of USD5.7bn provided by Washington State to Boeing are strictly illegal. We expect the US to respect the rules, uphold fair competition, and withdraw these subsidies without any delay."

The EU's claims were however challenged by Boeing. In a statement, the company said: "The WTO rejected entirely the EU's challenge to six of the seven incentives and rejected most of the challenge to the seventh. The WTO held only and narrowly that a reduction in Washington state's Business and Occupancy (B&O) tax rate for future 777X revenues is inconsistent with the WTO agreements. The WTO threw out all of the EU's other challenges to various incentive programs and left untouched even the B&O tax rate as it applies to revenue from the other Boeing models produced in Washington state – the 737, 747, 767, 777 (current model), and 787."

It added: "In total, the EU claimed that Boeing had received USD8.7bn in subsidies. This claim was rejected by the WTO, which found future incentives totaling no more than USD50m a year to be impermissible. The WTO found that to date Boeing has received no benefit from the 777X rate incentive, and will not until 2020, because the first airplane will not be delivered until then."

TAGS: compliance | tax | business | tax compliance | tax incentives | World Trade Organisation (WTO) | corporation tax | tax credits | agreements | manufacturing | legislation | tax rates | United States | tax breaks | tax reform | European Union (EU) | Europe

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