Now here is an interesting panel report that came out Wednesday, Sept. 30.
Can a WTO member (here, Argentina) impose “defensive measures” against countries not sharing tax information (here, Panama)?
The “defensive measures” had to do with capital gains, income tax, transfer pricing rules and rules on capital and re-insurance markets, all of which “sanctioned” non-cooperative countries.
When Panama requested the panel, Panama was on Argentina's list of non-cooperative countries. However, during the proceeding, in 2014, Argentina took Panama off that list, and this even though Panama had not agreed to share tax information …
In the end, the only WTO violation the panel found had to do with how Argentina lists countries. The panel basically faulted Argentina for INCLUDING Panama in the COOPERATIVE country list even though Panama was not actually cooperating (GATS Art. II MFN violation, not justified by GATS Art. XIV or the prudential carve-out, since the listing was not done rationally).
So the small victory scored by Panama is actually grounded in the fact that Argentina “wrongly” put Panama on the “good guys” list. How strange is this?
More systemically: this report says it is ok under WTO rules to take certain “sanctions” against tax havens …
Both the measures and the report are long and complex. But here are some highlights:
1. The panel makes it very easy to bring complaints under GATS, also for tax measures, as soon as they “affect” trade in services, MFN and national treatment claims (Arts. II and XVII) are possible. There is no need to show actual trade flows. (paras. 7.88 & 92)
2. Indeed, the panel found a GATS MFN violation even though it was actually Panama (the complainant itself!) that was (unjustifiably) treated MORE favorably than other WTO members, such as Hong Kong. So basically, any WTO member can complain about any GATS MFN violation by another WTO member, even if the complainant itself is not the one discriminated (indeed, here, it was the complainant, Panama, that was favored!). (para. 7.196).
3. The panel found that in a GATS “likeness” determination (MFN or national treatment (NT)), “other factors” than origin may make products “unlike”. Here, the panel was open to look at differences in “regulatory framework”, namely: does Argentina have access to tax information on certain foreign suppliers and not others? This “regulatory difference” can make services “unlike” (not sure what the AB would think of this …) (paras. 7.166, 173 & 179).
4. Also for “less favorable treatment” (under both MFN and NT), the panel did not stop at a mere finding of detrimental impact on imports (the way the AB did recently in EC – Seal). In the footsteps of TBT case law, the panel was willing to look at “regulatory differences” e.g. is a country sharing tax information with Argentina? These “regulatory differences”, other than origin as such, can avoid a finding of “less favorable treatment” (again, not sure what the AB would think of this …) (paras. 7.235 & 290; 505, 521)
5. The panel gave a broad reading of the “deceptive and fraudulent practices” exception in GATS Art. XIV(c)(i) as well as the prudential carve-out in para. 2(a) of the Annex on Financial Services, the first case ever on those provisions (it maintained an MFN violation finding for all 8 measures at issue but only because Argentina’s listing practice was not rational under the chapeau of XIV and hence not “for” prudential reasons under para. 2(a)).
6. The panel did provide a narrower reading of GATS Art. XVI, market access, finding that for something to be an Art. XVI(2)(a) market access restriction, the measure must regulate the supplier as such, and not merely have an indirect effect of limiting services/suppliers; this puts a brake on further expanding the US – Gambling effects approach. (paras. 7.421, 424, 428)
7. The panel also put brakes on applying GATT Arts. I, III and XI to what remain essentially income tax measures: in its view, Art. XI does not apply to fiscal rules (para. 7.1067); the tax measures here also did not sufficiently relate to importation or exportation for MFN to apply (para. 7.999), nor do transfer pricing rules for direct taxation purposes, for example, sufficiently affect products for III:4 to apply (para. 7.1028).
As I am working on a tax-trade-investment paper in the context of the OECD BEPS project (with a real tax expert colleague at Georgetown law), comments on this case would be much appreciated.
BTW: at para. 2.61, the panel states, matter of factly, that the OECD “FATF Recommendations are recognized as the international standard against money laundering and the financing of terrorism” (the footnote in support, however, is a reference to the FATF recommendations themselves … no discussion of the TBT criteria for something to be an international standard; throughout the panel refers approvingly to the OECD's tax work).
