(b) Internal measures

11.145 We turn first to the pre payment of the IVA established by RG 3431. Neither party to these proceedings has disputed that RG 3431 is an internal measure within the meaning of Article III:2, first sentence. We see no reason to take a different view. RG 3431 applies to definitive import transactions, but only if the products imported are subsequently re-sold in the internal Argentinean market.⁴³⁶  In other words, RG 3431 provides for the pre payment of the IVA chargeable to an internal transaction.⁴³⁷  It should also be pointed out that the fact that RG 3431 is collected at the time and point of importation⁴³⁸  does not preclude it from qualifying as an internal tax measure.⁴³⁹  We also agree with the parties that RG 3337 may be regarded as the domestic equivalent of RG 3431.⁴⁴⁰  RG 3337 applies to sales transactions involving domestic and (internally re-sold) imported goods.⁴⁴¹  

11.146 As concerns, next, the pre payment of the IG established by RG 3543, the European Communities considers that RG 3543 is an internal tax measure subject to Article III:2. The European Communities argues, however, that there is no collection mechanism equivalent to RG 3543 which governs internal sales transactions. More specifically, the European Communities contests that the withholding mechanism established by RG 2784 can be viewed as such. The European Communities notes that the pre payments made by importers pursuant to RG 3543 are assessed on top of the sales price invoiced by the foreign sellers and thus have the effect of increasing the price of goods for importers. In contrast, under the withholding mechanism set forth in RG 2784, the pre payments to be made by the seller are deducted from the price charged by the seller and hence do not increase the price of goods for purchasers.

11.147 Argentina contests that RG 3543 falls within the scope of Article III:2, but nevertheless is of the view that RG 2784 is the internal analogue of RG 3543.

11.148 It should be noted that RG 3543 applies only to sales transactions involving the definitive importation of goods and that it is assessed at the time and point of importation.⁴⁴²  Again, this does not, per se, remove RG 3543 from the scope of Article III:2, first sentence.⁴⁴³  The parties disagree, however, on whether RG 2784 is the domestic equivalent of RG 3543. We note that RG 2784 applies to both domestic and (internally re-sold) imported products.⁴⁴⁴  It does not apply to the definitive importation of goods.⁴⁴⁵  The different scopes of application of RG 3543 and RG 2784 are consistent, in our view, with Argentina's contention that RG 2784 is the domestic analogue of RG 3543.

11.149 Another difference between RG 3543 and RG 2784 is that RG 3543 envisages a collection regime and defines the purchaser as the taxable person, whereas RG 2784 establishes awithholding regime and defines the seller as the taxable person. Regarding these differences, we note as relevant the following statement by the GATT 1947 panel in Japan – Alcoholic Beverages I:

… Article III:2 does not prescribe the use of any specific method or system of taxation. … [T]here could be objective reasons proper to the tax in question which could justify or necessitate differences in the system of taxation for imported and for domestic products. ⁴⁴⁶

11.150 Applying the same reasoning to the present case, it is clear that the fact that RG 3543 creates a collection regime and not a withholding regime does not establish, in itself, that RG 2784 is not equivalent to RG 3543. The use of a different method of taxation may be justified by objective reasons. In this regard, it seems logical to us to collect pre payments of an income tax from the sellers of a product, as indeed RG 2784 envisages. As we understand it, RG 3543 does not do so, inter alia, because foreign sellers are not normally subject to income taxation in Argentina.⁴⁴⁷  In those circumstances, Argentina apparently saw fit to adjust for the adverse competitive effect of RG 2784 on domestic products by collecting pre payments from importers in accordance with RG 3543.

11.151 The European Communities alleges that there is yet another difference between RG 3543 and RG 2784, namely that the collection regime established by RG 3543 has the effect of raising the price of a good for the purchaser, whereas the withholding regime established by RG 2784 does not produce such an effect. In making this assertion, the European Communities assumes that domestic sellers are unable partially or wholly to shift forward to their domestic purchasers the tax burden resulting from RG 2784. Conversely, the European Communities assumes that foreign sellers are able to prevent importers from shifting backward part or all of the tax burden imposed by RG 3543. We find these assumptions inconsistent. Absent evidence to the contrary, we do not see why, as a general matter, foreign sellers should be able to avoid bearing part or all of the tax burden but domestic sellers should not or why domestic purchasers should be able to avoid bearing part or all of the tax burden but importers should not. ⁴⁴⁸

11.152 We find it more plausible and consistent to proceed on the assumption that, if the tax burdens⁴⁴⁹  imposed by RG 3543 and RG 2784 are the same, then the price effects of RG 3543 and RG 2784 should be the same. Thus, depending on the market situation, RG 3543 and RG 2784 should either cause the prices of like imported and domestic products to rise to the full extent of the tax burden imposed, to some extent or not at all, if the tax burden is fully absorbed by foreign and domestic sellers.

11.153 It is apparent from the foregoing considerations that the differences between RG 3543 and RG 2784 do not preclude those mechanisms from being compared for purposes of an analysis under Article III:2. To the contrary, in our assessment, the transactions caught by RG 3543 may properly be seen as the cross-border equivalent of the transactions subject to RG 2784. Whether a cross-border transaction involves a foreign producer and an importer or a foreign trader and an importer, an analogous internal transaction would or could be governed by RG 2784.⁴⁵⁰  We further regard as relevant the fact that RG 3543 specifically refers to RG 2784 and declares its provisions applicable as a subsidiary matter.⁴⁵¹  

11.154 For these reasons, we find that RG 3543 establishes a mechanism for the collection of the IG at the border which is equivalent in nature to the IG withholding mechanism established by RG 2784. In accordance with the Note Ad Article III, we therefore conclude that RG 3543 is an internal measure within the meaning of Article III:2.

(c) Measures applied to products

11.155 Neither party has expressed the view, as far as the pre payment of the IVA is concerned, that RG 3431 does not apply to goods. In our view, there can be no doubt in this respect.⁴⁵²  

11.156 Regarding the pre payment of the IG, the European Communities considers that RG 3543 establishes a tax on products and not on income. The European Communities notes that those payments must be made whether or not the underlying import transactions generate any profit and that the amount to be paid is computed on the basis of the customs value of the imported goods rather than the profit margin obtained with the import transactions. While the European Communities acknowledges that the IG itself is not a tax on products but on income, the mere fact that the pre payments of the IG may be credited against the definitive IG liability does not, in the European Communities' view, convert RG 3543 into an income tax outside the scope of Article III:2.

11.157 Argentina submits that the IG is not a tax on products and is therefore not subject to the provisions of Article III:2. According to Argentina, if the IG is not covered by Article III:2, then neither is a mechanism providing for its pre payment such as RG 3543. Argentina further argues that the pre payment of the IG provided for in RG 3543 is in no way related to products as such but to the presumed tax-bearing ability of a taxable person or the presumed income accruing to a taxable person who trades in products. Argentina submits that no-one imports goods without hoping to make a profit. Argentina also notes that the pre payments to be made are calculated on the basis of the customs value simply because this is the only yardstick available at the time the pre payments must be made.

11.158 We note that the provisions of RG 3543 clearly state that they apply to goods.⁴⁵³  Moreover, the amount to be collected pursuant to RG 3543 is determined by "applying the tax rate … to the normal price defined for the application of import duties, to which are added any import-related charges"⁴⁵⁴. In other words, the pre payments to be made are measured in terms of the (import duty-adjusted) price of the product itself. This assessment is unaffected by Argentina's explanation that RG 3543 uses the product price as a proxy for future income or tax-bearing ability.⁴⁵⁵  For these reasons, we find that RG 3543 is a tax measure which is "applied to products" within the meaning of Article III:2.

11.159 Argentina argues that, if the IG does not fall within the scope of Article III:2, neither does the collection regime established by RG 3543. We note that both parties concur that the IG is an income tax. We agree. We also agree that income taxes, because they are taxes not normally directly levied on products, are generally considered not to be subject to Article III:2.⁴⁵⁶  It is not obvious to us, however, how the fact that the IG is an income tax outside the scope of Article III:2 logically leads to the conclusion that RG 3543 does not fall within the ambit of Article III:2, even though RG 3543 is a tax measure applied to products. Not only do we see nothing in the provisions of Article III:2 which would preclude the applicability of these provisions to RG 3543 merely because of the latter's linkage to the IG. Were we to accept Argentina's argument, it would also not be difficult for Members to introduce measures designed to circumvent the disciplines of Article III:2.

11.160 It should be pointed out, in addition, that the Appellate Body faced a similar issue in Canada – Periodicals. At issue in that dispute was an excise tax imposed by Canada on advertisements in split-run periodicals. The tax was applied to the value of advertising carried by each issue of a split-run magazine. Canada maintained that the tax was a measure pertaining to advertising services and therefore not within the purview of the GATT 1994. The Appellate Body acknowledged that both the editorial and the advertising content of periodicals could be viewed as having services attributes, but observed that they nevertheless combined to form a physical product. It then went on to conclude that the GATT 1994 was applicable to the contested tax, reasoning that that tax "clearly applies to goods -- it is an excise tax on split-run editions of periodicals"⁴⁵⁷ Consistently with the Appellate Body's approach in Canada - Periodicals, we attach significance to the fact that RG 3543 is a tax measure which "clearly applies to goods". Merely that it is a measure pertaining to the IG does not remove it from the purview of Article III:2.

11.161 In light of all our considerations in Section XI.C.3, we find that RG 3431 and RG 3543 are internal tax measures applied to products. We therefore come to the overall conclusion that the provisions of Article III:2 apply to RG 3431 and RG 3543.

4. Likeness of imported and domestic products

11.162 The question we now turn to is whether the imported and domestic products subject to the collection mechanisms at issue in the present case are "like" within the meaning of Article III:2, first sentence.
 
11.163 The European Communities notes that the rates applicable under those mechanisms are based exclusively on whether the taxed products are imported or sold within Argentina and not on their physical characteristics or end-uses. The European Communities considers, however, that the mere fact that a product has Argentinean origin is not sufficient per se to confer upon that product properties which make it "unlike" any imported product.

11.164 The European Communities notes further that, under the current collection mechanisms, even if a foreign product were identical in all respects to a domestic product, the importation of the foreign product would still be taxed differently from the internal sale of the domestic product. Thus, even using the narrowest definition of the term "like product", imported products would be taxed differently. It is therefore not necessary, according to the European Communities, to show that products imported from the European Communities are like domestic products in light of criteria such as their physical characteristics or end-uses. The European Communities considers, moreover, that whether or not the products currently imported into Argentina are like the products of Argentinean origin is not dispositive. What matters is whether the products that might be imported from the European Communities are like Argentinean products. The European Communities maintains that the panel report on Indonesia – Certain Measures Affecting the Automobile Industry⁴⁵⁸  supports its position.

11.165 Argentina argues that the Appellate Body has established in Canada – Periodicals that for purposes of an Article III:2, first sentence, analysis it is necessary first to define the products which are "like". Argentina argues that such a "like products" determination must be made on a case-by-case basis rather than in abstract terms. This is particularly important, in Argentina's view, in cases where there are imports so that a "like products" determination can be made by comparing actual products sold on the Argentinean market rather than hypothetical products. Argentina further submits that likeness can only be established by specific reference to the well-established criteria for defining likeness. Argentina considers that the European Communities has not done any of the above and has not identified even one specific example of like products. Regarding the panel report on Indonesia – Automobiles, Argentina notes that Indonesia in that case did not challenge the definition of likeness proffered by the complaining parties.

11.166 Specifically with regard to the measures at issue, Argentina contests that imported products covered by RG 3431 or RG 3543 are subject, by virtue of their origin, to higher pre payment of the IVA or IG than like domestic products. In support of its argument Argentina refers to Decree No. 1439/96⁴⁵⁹, according to which products which are imported with a view to processing in Argentina and subsequent re-exportation are not subject to any pre payment of the IVA or IG. Argentina also recalls the multiplicity of regimes for the collection of the IVA, which vary depending on such factors as the categories of buyers or the amounts involved. In the view of Argentina, it is not possible, therefore, without discussing specific products, to conclude that the different collection mechanisms treat imported products less favourably.

11.167 It is well to recall at the outset that the Appellate Body, in its report on Canada – Periodicals, stated that "… Article III:2, first sentence, normally requires a comparison between imported products and like domestic products …"⁴⁶⁰  The Appellate Body, in the same report, further noted that a determination of likeness for purposes of Article III:2, first sentence, must be made by reference to relevant factors including the products' end-uses in a given market, consumers' tastes and habits and the products' properties, nature and quality

11.168 In the case before us, the European Communities has neither compared specific products nor addressed the criteria relevant to determining likeness. The European Communities considers that it is not incumbent upon it to do so. We agree. In circumstances such as those confronting us in this case no comparison of specific products is required.⁴⁶¹  Logically, no examination of the various criteria relevant to determining likeness is then called for either.

11.169 We consider that in the specific context of a claim under Article III:2, first sentence, the quantum and nature of the evidence required for a complaining party to discharge its burden of establishing a violation is dependent, above all, on the structure and design of the measure in issue.⁴⁶²  The structure and design of RG 3431 and RG 3543 and their domestic counterparts RG 3337 and RG 2784 are such that the level of tax pre payment is not determined by the physical characteristics or end-uses of the products subject to these resolutions, but instead is determined by factors which are not relevant to the definition of likeness, such as whether a particular product is definitively imported into Argentina or sold domestically as well as the characteristics of the seller or purchaser of the product.⁴⁶³  It is therefore inevitable, in our view, that like products will be subject to RG 3431 and its domestic counterpart, RG 3337. The same holds true for RG 3543 and its domestic counterpart, RG 2784.⁴⁶⁴  The European Communities has demonstrated this to our satisfaction, and, in our view, this is all it needs to establish in the present case as far as the "like product" requirement contained in Article III:2, first sentence, is concerned.⁴⁶⁵  

11.170 This view is consistent with that adopted by the panel in Indonesia – Automobiles. That panel was of the view that:

… an origin-based distinction in respect of internal taxes suffices in itself to violate Article III:2, without the need to demonstrate the existence of actually traded like products. ⁴⁶⁶

11.171 Argentina submits that it is not correct that imported products are automatically subject to higher pre payment of the IVA and IG than like domestic products. In support, Argentina cites the example of Decree 1439 on temporary imports, in respect of which importers are not liable to pre-pay the IVA. We note that imports for re-exportation are not destined for consumption in Argentina.⁴⁶⁷  As such, they may not be subject to the provisions of Article III:2. The example of temporary imports may therefore be irrelevant. We do not decide this issue here because, even assuming Article III:2 applied to such imports, this would not detract from the European Communities' claim that like products are governed by RG 3431 and RG 3337.⁴⁶⁸

11.172 Argentina further points out that there are various resolutions governing internal sales which establish regimes for the collection at source of the IVA and that no general statement may therefore be made to the effect that the origin of a product determines its level of tax pre payment. We recall that the resolutions at issue in the present dispute are RG 3431, which deals with import transactions, and RG 3337, which deals with domestic sales transactions. The fact that special regimes may apply in certain cases does not alter our conclusion with respect to whether like products fall under RG 3431 and RG 3337.⁴⁶⁹
 
11.173 It follows from the preceding considerations that like products will be subject to the resolutions referred to by the European Communities, i.e. RG 3431 and RG 3337 (with respect to collection at source of the IVA), on the one hand, and RG 3543 and RG 2784 (with respect to collection at source of the IG), on the other hand. We therefore conclude that the "like products" requirement contained in Article III:2, first sentence, is not fulfilled in the present case.

5. Comparison of tax burdens imposed

11.174 It will be recalled that the third and last step in an inquiry under Article III:2, first sentence, involves a comparison of the tax burdens imposed on imported and like domestic products. If the tax burden on imported products is in excess of the tax burden on like domestic products, there is an infringement.

11.175 We first turn to analyse the tax burdens imposed by the tax pre payment mechanisms at issue in the present case. Thereafter, we proceed to an examination of the European Communities' claim that those mechanisms impose a greater tax burden on imported products than on like domestic products. This examination is conducted separately for the pre payment of the IVA and the pre payment of the IG.

(a) Tax burdens imposed

11.176 The European Communities submits that, even if the pre payments of the IVA and IG may be credited against the definitive tax liability under the IVA Law and IG Law, taxable persons are still required to "advance" money to the Argentinean tax authorities. The European Communities points out in this regard that the cost for taxable persons of pre-paying part of the IVA or IG is not the same as the cost of paying those taxes in full at the end of the relevant tax period, even if the nominal amount to be paid is the same in both cases. The European Communities asserts that, if taxable persons were not required to pre-pay part of the tax, they would have the opportunity to earn interest on the amount pre-paid until the end of the relevant tax period. According to the European Communities, the loss of that revenue represents an additional financial cost for taxable persons. The European Communities considers that that additional cost is higher for importers than for buyers of domestic goods since the collection mechanisms applicable to imports provide for higher collection rates.

11.177 The European Communities argues that the additional cost resulting from the pre payment of the IVA and IG must be taken into account for purposes of an Article III:2 analysis. In support, the European Communities refers to the GATT 1947 panel report on EEC – Programme of Minimum Import Prices, Licences and Surety Deposits for Certain Processed Fruits and Vegetables ⁴⁷⁰, which, in its view, stands for the proposition that "lost interest" constitutes a charge for purposes of Article II:1(b) of the GATT 1994. The European Communities considers that, by the same token, "lost interest" must be considered as a charge also for purposes of Article III:2.

11.178 Argentina recalls that the overall rates of the IVA and IG are the same for imported and domestic products and that the measures challenged by the European Communities merely provide for the pre payment of the IVA and the IG. In Argentina's view, it is not correct to take a static view of the tax assessment process and to focus only on the point in time at which the pre payments of the IVA and IG are effected. Argentina notes that those pre payments are creditable at the time of settlement of the definitive IVA and IG liability. Argentina considers that the IVA and IG do not therefore impose a heavier tax burden on imported products than on like domestic products.

11.179 As regards the European Communities' allegation that importers must bear a greater financial cost as a result of the fact that the collection mechanisms applicable to imports provide for higher collection rates, Argentina considers that this additional financial cost is an opportunity cost associated with importation. Argentina argues that if purchasers decide to import a product rather than buy it on the local market, they must bear certain opportunity costs. Argentina asserts that the import-related financial cost in the present case, i.e. the lost interest, is no different, for instance, from the cost of hiring a customs agent to carry out the customs clearance of goods. Domestic goods do not bear that cost, but, in Argentina's view, this is no basis for considering that there is discrimination.

11.180 Argentina disputes, in any event, that "lost interest" is covered by Article III:2. In its view, "lost interest" cannot be considered as an "internal tax or other internal charge of any kind" within the meaning of Article III:2. Argentina also questions the relevance of the European Communities' analogy from the panel report on EEC – Fruits and Vegetables, noting that that case involved the application of Article II:1(b). Argentina further points out that there is nothing in the Understanding on the Interpretation of Article II:1(b) of the General Agreement on Tariffs and Trade 1994 or in Members' actual Schedules of Concessions to indicate that Members wished to equate the concept of "lost interest" with the concept of "other charges".

11.181 Article III:2, first sentence, stipulates that imported products must not be "… subject, directly or indirectly, to internal taxes or other internal charges of any kind in excess of those applied, directly or indirectly, to like domestic products". It is apparent that the application of this Article calls for a comparison of "taxes" or "charges" imposed on imported products with "taxes" or "charges" applied to like domestic products. What is less apparent is under what aspect those taxes or charges are to be compared.

11.182 In this regard, it is necessary to recall the purpose of Article III:2, first sentence, which is to ensure "equality of competitive conditions between imported and like domestic products"⁴⁷¹. Accordingly, Article III:2, first sentence, is not concerned with taxes or charges as such or the policy purposes Members pursue with them, but with their economic impact on the competitive opportunities of imported and like domestic products. It follows, in our view, that what must be compared are the tax burdens imposed on the taxed products.

11.183 We consider that Article III:2, first sentence, requires a comparison of actual tax burdens rather than merely of nominal tax burdens. Were it otherwise, Members could easily evade its disciplines. Thus, even where imported and like domestic products are subject to identical tax rates, the actual tax burden can still be heavier on imported products. This could be the case, for instance, where different methods of computing tax bases lead to a greater actual tax burden for imported products. In this regard, the GATT 1947 panel in Japan – Alcoholic Beverages I has stated that:

… in assessing whether there is tax discrimination, account is to be taken not only of the rate of the applicable internal tax but also of the taxation methods (e.g. different kinds of internal taxes, direct taxation of the finished product or indirect taxation by taxing the raw materials used in the product during the various stages of its production) and of the rules for the tax collection (e.g. basis of assessment).⁴⁷²  

11.184 It may thus be stated, in more general terms, that a determination of whether an infringement of Article III:2, first sentence, exists must be made on the basis of an overall assessment of the actual tax burdens imposed on imported products, on the one hand, and like domestic products, on the other hand.

11.185 With this in mind, we now turn to examine the actual tax burdens which RG 3431 and RG 3543 impose on imported products. We recall that under RG 3431 imports are subject, upon importation, to pre payment of the IVA at a rate of 10 percent or 12.7 percent ad valorem. Under RG 3543, the IG must be pre-paid on imports at a rate of 3 percent or 11 percent ad valorem. In both cases, the amount thus paid may be credited at the time when the taxable persons must settle their definitive liability under the IVA Law and IG Law.⁴⁷³  

11.186 Argentina is correct, in our view, in pointing out that a factual situation such as the one before us calls for a dynamic view of the taxation process. Thus, taking a dynamic view, it is apparent that RG 3431 and RG 3543 do not give rise to net tax payments, given that the amounts paid are creditable against the definitive liability under the IVA Law and IG Law. However, this does not mean that no actual tax burden is imposed by RG 3431 and RG 3543. As a matter of fact, an actual tax burden does arise.

11.187 The actual tax burden which arises from RG 3431 and RG 3543 may take one of two forms, depending on the factual circumstances of each case. First, in situations where taxable persons have disposable working capital to finance the pre payment of the IVA or IG, they are forced, on account of the pre payment requirement, to forego interest on that working capital in the interval between the tax pre payment and its crediting. Alternatively, in situations where taxable persons do not have disposable working capital to finance the pre payment of the IVA or IG, they need to raise the necessary capital and pay interest on it in the interval between the tax pre payment and its crediting.

11.188 It is clear to us that both of these situations give rise to a financial burden, an opportunity "cost" in one case and a debt financing "cost" in the other.⁴⁷⁴  Likewise, it is readily apparent that that financial burden is incidental to and directly caused by RG 3431 and RG 3543.⁴⁷⁵  For these reasons, it is properly regarded as an integral part of the actual tax burden imposed by RG 3431 and RG 3543.⁴⁷⁶  As such, it falls squarely within the scope of Article III:2, first sentence.

11.189 We therefore conclude that, even in a dynamic perspective, both RG 3431 and RG 3543 impose actual tax burdens on the products governed by them.

11.190 Before proceeding to analyse the European Communities' claims that imported products are subject to an actual tax burden which exceeds that imposed on like domestic products, it is necessary once again to draw attention to the direct causal link between the tax pre payments specifically envisaged in RG 3431 and RG 3543, on the one hand, and the incidental financial burden in the form of interest foregone or paid, on the other hand. Thus, to the extent that, pursuant to RG 3431 and RG 3543, higher nominal pre payment rates apply to imported products than to like domestic products, this necessarily implies that a heavier actual tax burden is imposed on imported products.

11.191 In view of the fact that Argentina does not compensate importers subject to RG 3431 and RG 3543 for all or part of the interest lost or paid,⁴⁷⁷  it is sufficient, for purposes of establishing violations of Article III:2, first sentence, for the European Communities to demonstrate that imported products are subject to higher nominal pre payment rates than like domestic products or are subject to pre payment when like domestic products are not.

(b) Pre payment of the IVA

(i) Claims by the European Communities

11.192 The European Communities has made several specific claims to the effect that, pursuant to RG 3431, import transactions are subject to higher pre payment of the IVA than internal sales transactions or are subject to such pre payment when internal sales transactions are not. Those claims are examined below individually, together with those of Argentina's counter-arguments which are specific to each of the European Communities' claims. Argentina has also made a number of broad counter-arguments in respect of the European Communities' claims. For the sake of convenience and economy of effort, those counter-arguments of a broad nature are addressed separately in Section XI.C.5(b)(ii) of our findings. It follows from this that, should we conclude in this Section that one or other of the European Communities' claims is justified, that conclusion cannot be considered definitive until and unless we have reached the further conclusion that Argentina's broad counter-arguments are not sustainable.

Lower pre payment rates applicable to internal sales to registered taxable persons

11.193 The European Communities notes that RG 3431 establishes a generally applicable pre payment rate for imports by registered taxable persons of 10 percent.⁴⁷⁸  The European Communities points out that, on the other hand, pursuant to RG 3337, internal sales of goods to registered taxable persons are subject to pre payment at a lesser rate of 5 percent.⁴⁷⁹
 
11.194 Argentina points out that internal sales transactions may be subject to either collection at source in accordance with RG 3337 or withholding pursuant to General Resolution (AFIP) No. 18/97⁴⁸⁰  . RG 18 establishes a withholding rate of 10.5 percent.⁴⁸¹ Argentina further points out that, previously, no pre payment of the IVA had to be made on imports. Argentina notes that RG 3431 was enacted to ensure equal treatment of imports and internal sales.

11.195 We note that imports governed by RG 3431 are subject to pre payment of the IVA at a rate of 10 percent, whereas, in accordance with RG 3337, internal sales of like products by agentes de percepción to registered taxable persons are subject to pre payment of the IVA at a lower rate of 5 percent.
 
11.196 Even recognizing that a heavier tax burden is imposed on internal sales transactions which are governed by RG 18 (which provides for a withholding rate of 10.5 percent) than on import transactions falling under RG 3431 (which provides for a collection rate of 10 percent) and involving like products, this would not be inimical to the European Communities' claim. The provisions of Article III:2, first sentence, are applicable to each and every import transaction. It is well established that the fact that some imported products receive more favourable tax treatment than like domestic products cannot successfully be invoked as justification for less favourable tax treatment of other imported products.⁴⁸²  

11.197 In light of the foregoing, we conclude that RG 3431, by providing for higher pre payment rates for imports by registered taxable persons than for internal sales subject to RG 3337, is inconsistent with Article III:2, first sentence.

No pre payment on internal sales to non-registered taxable persons

11.198 The European Communities points out that no pre payment of the IVA is due in the case of internal sales to non-registered taxable persons, whereas the IVA must be pre-paid in the case of imports by non-registered taxable persons.

11.199 Argentina acknowledges that no pre payment of the IVA is due in cases of internal transactions between non-registered taxable persons. Argentina asserts, however, that it cannot possibly occur in practice that non-registered taxable persons are habitual importers, because registration is compulsory for those taxable persons whose income from transactions exceeds a specified limit. Argentina further argues that the status of "non-registered taxable person" is a voluntary one, since any individual can obtain the status of "registered taxable person" by applying to the tax authority.

11.200 As concerns sales by registered taxable persons to non-registered taxable persons, Argentina recalls that registered taxable persons must act, in such transactions, as agentes de percepción for non-registered taxable persons and collect an additional amount which corresponds to an estimate of the IVA which is payable by non-registered taxable persons on the re-sale of the products purchased. Argentina considers that there is therefore no discrimination between non-registered taxable persons who purchase from foreign sellers and those who purchase from domestic registered taxable persons. Argentina further notes that the aforementioned special collection mechanism facilitates payment of the IVA and reduces the number of taxable persons subject to inspection.

11.201 We understand the European Communities' claim to be based on a comparison of the pre payment required with respect to import transactions, on the one hand, and the pre payment required on either of two types of internal sales transactions, on the other hand.⁴⁸³  Those two types are (i) internal sales by non-registered taxable persons to non-registered taxable persons and (ii) internal sales by registered taxable persons to non-registered taxable persons.

11.202 Regarding the first comparison, we note that internal sales by non-registered taxable persons to non-registered taxable persons are not subject to the IVA and consequently not to any pre payments of it either.⁴⁸⁴  In contrast, pursuant to RG 3431, the IVA must be pre-paid on imports by non-registered taxable persons at a rate of 12.7 percent.⁴⁸⁵  That pre payment cannot be credited against the IVA.⁴⁸⁶  As concerns the second comparison, we note that, in the case of internal sales by registered taxable persons to non-registered taxable persons, the purchasers must make an additional, i.e. non-creditable, IVA payment of 10.5 percent.⁴⁸⁷  On the other hand, as already mentioned, the IVA must be pre-paid on imports by non-registered taxable persons at a rate of 12.7 percent. It is apparent from the foregoing that, in both situations, imported products are subject to a heavier tax burden than like domestic products.

11.203 Argentina submits that it cannot possibly occur in practice that non-registered taxable persons are habitual importers, because registration is compulsory for those taxable persons whose income from transactions exceeds a specified limit. It should be noted, first, that Article III:2 applies to all imported goods and not only to those imported by habitual importers. We further note that Argentina does not argue that it is legally impossible for non-registered taxable persons to import goods.⁴⁸⁸ Moreover, even assuming it were true, as a factual matter, that there are presently no or only few non-registered taxable persons who import goods, this would not, per se, warrant the conclusion that such persons could not import goods in the future. Likewise, the fact that the rate of 12.7 percent may not have had a significant trade effect thus far, would not, in line with general practice under Article III:2, first sentence, be fatal to the European Communities' claim.⁴⁸⁹  For all these reasons, we are not convinced by Argentina's argument.

11.204 Argentina further points out that any individual can obtain the status of a registered taxable person by applying to the tax authorities. While this may be correct,⁴⁹⁰  we fail to see how the possibility of obtaining the status of a registered taxable person could prevent imports by non-registered taxable persons from being subject, as a matter of law, to a heavier tax burden than like domestic products purchased by non-registered taxable persons.

11.205 As regards, finally, Argentina's assertion that the collection of an additional amount of IVA by registered taxable persons on their internal sales to non-registered taxable persons facilitates payment of the IVA and reduces the number of taxpayers subject to inspection, we note that it is not obvious to us, in the absence of specific information on this point, why Argentina nevertheless considers that all imports by non-registered taxable persons warrant such inspection. In any event, nothing in the terms of Article III:2, first sentence, justifies a departure therefrom on the basis that doing so is in the interest of efficient tax administration.⁴⁹¹  

11.206 We therefore conclude that RG 3431, by requiring the pre payment of the IVA on imports by non-registered taxable persons when no pre payment of the IVA or additional IVA payment of equal amount is required on internal sales to non-registered taxable persons, is inconsistent with Article III:2, first sentence.

No pre payment on internal sales by non-agentes de percepción

11.207 The European Communities argues that the pre payment of the IVA is required only on internal sales made by agentes de percepción, whereas the IVA must be pre-paid with respect to essentially all import transactions.

11.208 As we understand it, the European Communities' claim is in respect of the fact that internal sales transactions involving sellers other than agentes de percepción are not within the purview of RG 3337,⁴⁹²  whereas the IVA must be pre-paid, pursuant to RG 3431, on essentially all import transactions⁴⁹³  and regardless of the "status" of the foreign seller. More specifically, it appears to us that the European Communities' broad claim arises out of the fact that no pre payment is required on (i) internal sales transactions involving registered taxable persons as both sellers and purchasers⁴⁹⁴  and (ii) internal sales transactions between non-registered taxable sellers and registered taxable purchasers⁴⁹⁵.⁴⁹⁶
  
11.209 Argentina has not specifically addressed this claim by the European Communities.⁴⁹⁷  Argentina has explained, however, that collection at source regimes inter alia serve as means of preventing tax evasion in that they involve adversarial-style checks between agentes de percepción and tax debtors⁴⁹⁸ . While with respect to imports it is the Directorate-General of Customs which serves as agente de percepción, for internal sales transactions Argentina appoints certain persons, often large companies, to act as agentes de percepción.

11.210 It is not incumbent upon us to speculate why Argentina chose not to appoint other persons as agentes de percepción and for what reasons it did not see fit to subject to IVA pre payment internal sales by non-agentes de percepción. It is sufficient to note that we are not aware, and have not been made aware, of any reason why it would not be possible, as a matter of Argentinean law or as a factual matter, for non-agentes de percepción to be involved in internal sales transactions as sellers. As a further consideration, we add that, in the context of an inquiry under Article III:2, first sentence, the mere fact that a domestic product is sold by a non-agente de percepción does not, in our view, render a product which is otherwise like an imported product "unlike" that product.⁴⁹⁹  

11.211 In light of the foregoing, we can only conclude that Argentina, by requiring the pre payment of the IVA in the case of imported products when like domestic products sold by a non-agente de percepción are not subject to any pre payment of the IVA, acts inconsistently with its obligations under Article III:2, first sentence. ⁵⁰⁰

No pre payment on internal sales to certain financial entities or agentes de percepción/retención

11.212 The European Communities submits that no pre payment of the IVA is required on internal sales to certain categories of purchasers, including in particular the financial entities governed by Law No. 21526 and agentes de percepción/retención, whereas the IVA must be pre-paid with respect to essentially all import transactions.

11.213 Argentina argues that the financial entities governed by Law No. 21526 are excluded from the collection mechanism established by RG 3337 because they ensure that collection takes place with a high degree of efficiency and security and also fall under the control of Argentina's Central Bank. Argentina further submits that the corporate purpose (objeto social) of financial entities does not include trading. In Argentina's view, it may thus be inferred that any imports effected by such entities would involve goods intended for use in their economic activity (bienes de uso), which goods are not subject to RG 3431, i.e. the collection mechanism applicable to import transactions. With regard to the exemption from RG 3337 of agentes de retención, Argentina asserts that this is necessary as otherwise both collection at source and withholding of the IVA would occur in one and the same internal sales transaction. ⁵⁰¹

11.214 We first consider the European Communities' claim in respect of financial entities. RG 3337 excludes from its scope of application financial entities governed by Law No. 21526 as modified.⁵⁰²  By contrast, financial entities of the same kind are not specifically excluded from the provisions of RG 3431.

11.215 According to Argentina, financial entities are not subject to RG 3337 because they do not cause significant collection problems and are under the supervision of the Central Bank. Even if true, this does not justify imposing a greater tax burden on products imported by financial entities than on products purchased domestically by the same entities. To the contrary, this constitutes an infringement of the provisions of Article III:2, first sentence.

11.216 Regarding Argentina's contention that, in view of their corporate purpose (objeto social), financial entities could not import and re-sell goods, we note that Argentina has not submitted any evidence establishing that financial entities are legally barred from engaging in cross-border trading of goods.⁵⁰³  Moreover, we fail to see, and Argentina has not explained to us, why the same rationale, if it had any legal basis, should not apply in the same way to internal purchase and re-sale transactions involving financial entities. We cannot, therefore, accept this argument.

11.217 Furthermore, it is not convincing for Argentina to argue that any import transactions undertaken by financial entities would involve goods intended for use in those entitities' economic activity (bienes de uso), which transactions are not governed by RG 3431.⁵⁰⁴  In our understanding, internal sales transactions involving the same category of goods (bienes de uso) are not subject to RG 3337 either.⁵⁰⁵  Yet RG 3337 specifically exempts financial entities from its purview, whereas RG 3431 does not.

11.218 The foregoing leads us to the conclusion that, by subjecting products imported by financial entities to a heavier tax burden than domestic products bought by those entities, Argentina is in breach of Article III:2, first sentence.

11.219 We now turn to examine the European Communities' claim concerning the exemption from RG 3337 of internal sales by agentes de percepción to agentes de percepción/retención. Pursuant to Article 3 b) of RG 3337, agentes de percepción/retención which buy from agentes de percepción/retención are not required to pre-pay the IVA.⁵⁰⁶  On the other hand, importers are generally liable to pre-pay the IVA under RG 3431.⁵⁰⁷

11.220 Argentina points out that the exemption for purchases by agentes de percepción/retención is necessary to avoid a situation where one and the same internal sales transaction is subject to both collection and withholding at source. For present purposes, we need not decide whether this exemption is indeed necessary.⁵⁰⁸  Article III:2, first sentence, prohibits the imposition of different tax burdens on imported and like domestic products. The identity and circumstances of the persons involved in sales transactions cannot, in our view, serve as a justification for tax burden differentials.⁵⁰⁹  

11.221 Moreover, nothing in Article III:2, first sentence, provides any basis for subjecting imported products to heavier tax burdens than like domestic products on the grounds that this is dictated by the details of a particular tax system. This should not be construed to mean that Members are not free, in principle, to choose and implement any kind of product tax system. They clearly are.⁵¹⁰  However, that choice must be consistent with the disciplines of Article III:2, first sentence.⁵¹¹  

11.222 We therefore conclude that RG 3431 is inconsistent with Article III:2, first sentence, by subjecting imported products to a heavier tax burden than like domestic products subject to RG 3337 and purchased by agentes de percepción/retención.