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WTO Reverses Decision On US Boeing Subsidies

by Ulrika Lomas, Tax-News.com, Brussels

05 September 2017


The EU has said that it disagrees with the decision made by the WTO's Appellate Body to reverse a previous panel ruling that a tax break provided by Washington State to Boeing is a prohibited subsidy.

A WTO panel was set up in September 2015 in response to an EU allegation that a number of "conditional tax incentives" established by the state of Washington in relation to the development, manufacture, and sale of large civil aircraft are prohibited subsidies. The panel's final report was published in November 2016, after which the US appealed to the WTO's Appellate Body and the EU cross-appealed.

The Appellate Body released its report on September 4, 2017. It reversed the panel's finding that a reduced business and occupation tax rate for the manufacturing or sale or commercial airplanes under the Boeing 777X program is a prohibited subsidy.

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

While the original panel did not rule in favor of the EU on all arguments, it did conclude 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 WTO's Subsidies and Countervailing Measures (SCM) Agreement.

The panel found that although the EU had not demonstrated that the measures are de jure (by right) contingent upon the use of domestic, rather than imported, goods, the reduced business and occupation tax rate was deemed de facto contingent upon the use of domestic over imported goods and therefore inconsistent with the SCM Agreement.

The US appealed the finding that the measure is a subsidy de facto contingent upon the use of domestic over imported goods, and the EU appealed the finding that it had failed to demonstrate the de jure contingency of the measures.

The Appellate Body rejected the EU's claim that the panel had erred in its interpretation of the SCM Agreement in the context of its de jure contingency analyses.

It also found that the panel had not properly established that the lower business and occupation tax rate was de facto contingent upon the use of domestic over imported goods. It therefore reversed the panel's finding that the measure constituted a prohibited subsidy.

TAGS: tax | business | tax incentives | World Trade Organisation (WTO) | manufacturing | legislation | trade disputes | tax rates | United States | tax breaks | trade | European Union (EU) | Europe

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