Question

 

1-IN THE DISPUTE OF US-TAX TREATMENT FOR “FOREIGN SALES CORPORATION “

US DEFEND ITS POLICY AS FOLLOWS:

US APPLIES THE WORLDWIDE TAXATION SYSTEM. EXPORTERS IN US ARE IN DISADVANTAGEOUS POSITION COMPARED WITH EXPORTERS IN COUNTRIES WITH TERRITORIAL TAXATION SYSTEM, WHERE OVERSEAS INCOME IS NOT SUBJECT TO TAXATION OF HOME COUNTRY

IF THE PANEL SUPPORTS EU’S POSITION, IT IMPLIES ALL THE MEMBERS WITH TERRITORIAL TAXATION ARE IN VIOLATION OF WTO RULES.

HOW DID THE PANEL ANALYZE THE ISSUE?

2-SEVERAL “exception “ to The trade rules are described in GATT article XX’

General exceptions. Among those exceptions, one is related to “ the conservation of exhaustible natural resources “. Three conditions must be satisfied in order to be saved by this exception. Please list the three conditions and briefly explain each one. China lost the dispute on the “ measures related to the Exportation of Various Raw Materials “ why?

Answer 1

1                                 

                                    A worldwide taxation system refers to a system of taxation in which the ‘resident’ corporations are taxable by that nation for their income from all over the world. This may be done either by deduction of taxes or credit of taxes which may be paid to the source country on the same income. US follows the worldwide taxation system by deferral of taxes. A territorial taxation system imposes taxation only on the income that is earned within the country’s borders, whether the business is headquarters in that country or in a foreign country

                                    The World Trade Organization rules specify that the territorial system of taxation followed by the European Union would be disadvantageous due to the following reasons

· It violates the subsidy principle of taxation

· They constituted a specific exception from the Worldwide taxation system like dependency on the exports

· These types of taxation systems would not be able to curtail the double-taxation problems across the borders.

· It would help in expanding the existing breaks for offshore corporate profits and thus would disrupt international trade

The panel could analyse the issue based on the above concerns and thus conclude that the territorial taxation system would result in violating many international trade laws and hence would disrupt the international trade. This would be disadvantageous to nations like the USA which follows a worldwide taxation system.

2

                                    GATT trade rules specifies several exceptions of which ‘exception to conservation of natural resources’ is one. The three conditions to be satisfied for the exception are

· Relating to conservation: It stated that a trade measure did not have to be necessary or essential for the conservation of an exhaustible natural resource it has to aim at conservation as ‘relating to’ conservation practices. Thus, a country can effectively control the production or consumption of an exhaustible natural resource only to that extend that the production and consumption is under its jurisdiction

· In relation to exhaustible natural resources, it has to cause minimal effects to the naural resources.

· It has to be made effective in conjunction with restrictions on the domestic production or consumption.

                                               In certain measures related to ‘Exportation of raw materials’, China was alleged to hold certain unpublished restrictions. The following are the reasons why China lost the case

· The panel found that China imposed export quotas and duties on certain selected products violating the international trade rules

· As the trade purposes must be in conjunction with improving domestic production and consumption, the export duty effect violated the rules.