United States Tax Treatment For Foreign Sales Corporations

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3.3 The market benchmark is not unambiguous in some cases In most of the circumstances, market benchmarks can be applied to determine whether the recipient received the benefit clearly. However, in some cases, corresponding market benchmarks are not that explicit. Specifically, a kind of financial contribution given by the government should be worth noting. The article 1.1 (a) (1) (ii) of the SCM agreement states that revenue forgone or not collected is a sort of financial contribution. In the progress of determining subsidies, it is meaningless that only the financial contribution is identified. It is more important that an appropriate benchmark is identified to measure whether the recipient has received benefits. Unfortunately, in the…show more content…
The contention between the EU and the US was whether the tax exemption constituted subsidies. The EU held that the US government policy was a subsidy, as the revenue which was otherwise due was forgiven. However, the US expressed a different standpoint. The US stated that the tax exemption policy was only a part of the US tax system, rather than export subsidies. Afterwards, the Panel and the AB were called to decide whether or not the tax exemption was a subsidy. The EU’s opinion, eventually, was supported by both the Panel and the AB. The Panel and the AB provided different benchmarks to test whether the tax exemption constituted a subsidy. 3.32 The ‘in the absence of ‘test provided by the Panel The Panel insisted on the existence of subsidies. However, the ‘in the absence of ‘test proposed by the Panel was heavily criticized. To be specific, the Panel interpreted the market benchmark according to the Article 1.1 (a) 1) (ii). The term ‘otherwise due’ adopted by the Panel means ‘the situation that would exist but for the measure in question.’ Applying the ‘but for’ test to US-FSCs, the market benchmark would be the situation that would prevail but for the tax exemption policy. Even though the Panel considered the ‘but for’ approach was more efficient, the ‘but for’ test was still criticized heavily afterwards. The AB considered that the ‘but for’
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