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Minimum pre payment threshold for internal sales
11.223 The European Communities asserts that no pre payment of the
IVA is required on internal sales below a certain amount, while the IVA
must be pre-paid by importers irrespective of the value of import
transactions.
11.224 Argentina argues that the minimum pre payment threshold for
internal sales transactions set out in Article 5 of RG 3337 serves the
reasonable, economical and practical management of the collection
mechanism established by RG 3337. Argentina submits that no minimum
threshold exists for pre payments resulting from import transactions as
there is an assumption that such transactions always involve large sums of
money. According to Argentina, this is so because of the quantities and/or
cost involved in cross-border transactions. Argentina considers that small
import transactions would be hardly worth importers' while, since
importation requires a specific type of business structure. Argentina
further points out that no pre payment of the IVA is required for samples
of a value not exceeding US$100, which, in Argentina's view, shows that
there is a certain threshold also for imports.
11.225 We note that Article 5 of RG 3337 provides for a minimum pre
payment threshold. Where a taxable transaction gives rise to an amount of
pre payment which is equal to or below the pre payment threshold amount,
no pre payment is collected.512 No such minimum pre payment threshold is set
forth in RG 3431.
11.226 We are unable, in the context of an inquiry under Article III:2,
first sentence, to accept Argentina's argument that the minimum pre
payment threshold, which is available only for domestic products, is
appropriate for purposes of the "reasonable", "economical" and "practical"
administration of the collection of the IVA. Nothing in Article III:2,
first sentence, suggests that Members need not adhere to its provisions
where doing so would compromise administrative efficiency.513 Even assuming
such an argument could be accepted in principle, we are not persuaded that
the administrative constraints cited by Argentina apply only to domestic
products. Moreover, Argentina has not demonstrated that import
transactions "always" involve large amounts of money so that no minimum
pre payment threshold is necessary.
11.227 Notwithstanding Argentina's assertion to the contrary, it is
immaterial, in our view, that samples of a certain money value are not
subject to RG 3431.514 Even if that assertion were correct, the fact remains
that the minimum pre payment threshold set out in Article 5 of RG 3337
extends to products other than samples. As a result, with respect to
imported products which are not samples, the differential treatment and
the attendant tax burden differential persist.
11.228 On that basis, we conclude that, by providing for a minimum pre
payment threshold exclusively for the benefit of domestic products,
Argentina imposes on imported products falling under RG 3431 a greater tax
burden than on like domestic products, which is contrary to Article III:2,
first sentence.
(ii) Broad counter-arguments by Argentina515
Adjustment for prior-stage pre payment
11.229 Argentina asserts that imported products do not bear a greater tax
burden than like domestic products if account is taken of pre payments of
the IVA made at marketing stages prior to the sale of the finished
domestic products. Argentina maintains that the total amount of pre
payments of the IVA borne by domestic finished products is equal to or
greater than the pre payment of the IVA collected on imported finished
products at the time of importation.516 Argentina argues that it may be
deduced from the report of the Working Party II on Schedules and Customs
Administration 517 that such
"domestic" prior-stage pre payments of the IVA must be taken into
consideration for purposes of an analysis under Article III:2.
11.230 The European Communities agrees that Argentina may be entitled to
compensate for the financial costs imposed on domestic products at prior
processing stages. The European Communities notes, however, that what
could be compensated for is not the amount of the pre payments of the IVA
at prior domestic processing stages, but only the additional financial
cost imposed on taxable persons in the form of lost interest. The European
Communities further submits that Argentina has not provided evidence
showing that the different rates applied to imports and internal sales
correspond to the actual difference in costs borne by imported and like
domestic products or, at least, to a reasonable estimate thereof. The
European Communities adds that the rates on imports do not vary depending
on their degree of processing. According to the European Communities, the
rates should be higher on imports of processed products, since domestic
products are likely to have been subjected to pre payments on more
occasions than unprocessed products.
11.231 We note that both parties to these proceedings consider that
Argentina may, in principle, impose on imported products a tax or other
charge equivalent to and not in excess of the taxes or other charges
levied internally at the various stages of production of the like domestic
product. It is not necessary for us to take position on this legal issue
in the present case.518 Even assuming that the parties' view were legally
correct, we consider that Argentina has not presented argument and
evidence sufficient for us to modify our earlier findings in respect of RG
3431.
11.232 Argentina has not adduced any evidence which would establish that
the interest lost or paid due to the collection at source of the IVA on
imported products is equivalent to the cumulative interest lost or paid
due to the collection or withholding at source of the IVA on like domestic
products at the various stages of their production.519
11.233 Moreover, Argentina has not supplied a convincing explanation of
why imports are subject to a flat rate of collection notwithstanding the
varying degrees of processing of imported products.520 In our view,
Argentina's assertion that the rate differentials adjust for prior-stage
tax burdens borne by domestic products implies that the amount of
adjustment should normally be greater (and hence the rates of collection
higher) for imported products with a high level of processing than for
imported products with a low level of processing. This is because, in the
case of imported products with a high level of processing, like domestic
products may reasonably be assumed to have undergone a greater number of
production and processing stages and thus to have given rise to a greater
number of pre payments of the IVA than domestic products with a low level
of processing.
11.234 In light of the foregoing, we cannot accept Argentina's argument
that imported products covered by RG 3431 are not subject to greater tax
burdens than like domestic products, if account is taken of prior-stage
tax burdens borne by like domestic products.
Exemption mechanism
11.235 Argentina submits that General Resolution (AFIP) No. 17/97521
establishes a mechanism for the exemption of taxable persons from the
various mechanisms for the collection or withholding at source of the IVA.
According to Argentina, such exemption is automatically granted in cases
where those collection regimes could give rise to pre payments of the IVA
which exceed a taxable person's definitive tax liability under the IVA
Law.522 Argentina argues that the exemption mechanism is aimed precisely at
avoiding a situation where the rate differentials challenged by the
European Communities generate a financial cost which alters the
competitive opportunities of imported and domestic products.
11.236 The European Communities argues that RG 17 does not remedy the
discrimination which is the subject of its complaint. The European
Communities submits that importers may be granted an exemption from the
requirement to pre-pay the IVA only in situations where it can be
anticipated that they will find themselves in a loss position at the end
of the relevant tax period. The European Communities' complaint is
concerned, however, with the extra financial cost caused by the pre
payments of the IVA during the tax period.
11.237 As a factual matter, the first thing that should be noted is the
limited availability of the exemption mechanism envisaged in RG 17.523 In
order for taxable persons to benefit from the mechanism, they must be able
to demonstrate an actual tax balance in their favour in the month
immediately preceding the date of an application for exemption.524 In other
words, taxable persons must already have made pre payments of the IVA in
excess of their definitive tax liability to be able to avail themselves of
the mechanism.
11.238 As regards the benefit of the mechanism, either full or partial
exemption may be granted from the pre payment of the IVA, depending on the
circumstances of each case.525 Exemptions are granted only for the tax period
following the date of the application for exemption. Argentina has
confirmed that exemptions cannot be granted for tax periods prior to the
date of application.526 As we understand it, this means that pre payments
made in excess of actual tax liability cannot be recovered.
11.239 On the basis of the above, it is clear to us that the exemption
mechanism benefits only a limited class of taxable persons and then only
for the future. Moreover, where exemptions are granted, they do not
compensate for actual excess pre payments of the IVA and the lost interest
associated with such overpayments. In such circumstances, we fail to see
how the exemption mechanism provided for in RG 17 could be said to prevent
RG 3431 from infringing Article III:2, first sentence, even for those
importers who meet the relevant eligibility criteria. A fortiori, RG 17
cannot provide legal cover for Argentina with respect to the class of
importers who do not satisfy its eligibility criteria.
11.240 We cannot, therefore, accept Argentina's argument based upon the
exemption mechanism set forth in RG 17.
Magnitude and duration of the tax burden differentials
11.241 Argentina argues that the tax burden differential challenged by the
European Communities is de minimis.527 According to Argentina, the present
case is very different from the cases in which it has been established
that Article III:2, first sentence, does not contain a de minimis
exception. Argentina submits that all those previous cases were based on
tax rate differentials, whereas, in the present case, the IVA Law provides
for identical tax rates for imported and domestic products. Argentina
further argues that the impact of the loss of interest alleged by the
European Communities is limited to a maximum of 30 days.
11.242 The European Communities submits that the Appellate Body has
confirmed in Japan – Alcoholic Beverages II that Article III:2, first
sentence, is not qualified by a de minimis standard. The European
Communities also questions the correctness of Argentina's contention that
the impact of the lost interest is limited to 30 days, stating that the
impact may last longer than 30 days in cases where, for instance, an
importer does not re-sell the imported goods within that time-period.
11.243 With respect to the permissibility of tax burden differentials, the
Appellate Body stated in Japan – Alcoholic Beverages II that:
Even the smallest amount of "excess" is too much. "The prohibition of
discriminatory taxes in Article III:2, first sentence, is not conditional
on a 'trade effects test' nor is it qualified by a de minimis standard."
528
11.244 In light of this statement, we disagree with Argentina's argument
that the tax burden differential resulting from RG 3431 and RG 3337 is
consistent with Article III:2, first sentence, because the magnitude of
the differential is de minimis. Nor are we convinced by Argentina's
contention that the tax burden differentials in the present case are
qualitatively different from those at issue in earlier GATT/WTO cases.529
11.245 As regards Argentina's assertion that the tax burden differential
is limited to a 30-day period, we find it unnecessary to decide whether
Argentina is correct as a factual matter because, even if the impact of
the tax differential were limited to a 30-day period, this would not
remove or justify any of the violations of Article III:2, first sentence,
we have found earlier. The terms of Article III:2, first sentence,
prohibit tax burden differentials irrespective of whether they are of
limited duration. Moreover, since we have found above that even the
smallest tax burden differential is in violation of Article III:2, first
sentence, it would be inconsistent for us to allow tax burden
differentials on the basis that their impact is limited to a 30-day
period.
11.246 In light of the foregoing, we do not accept Argentina's arguments
based on the magnitude and duration of the tax burden differentials.
Provisions of domestic law
11.247 Article 45 of the IVA Law provides:
For the purposes of this law, no discriminatory treatment based on the
national or foreign origin of goods shall be admissible in respect of
rates or exemptions.
11.248 Argentina maintains that in view of the existence of Article 45 it
cannot be said that the regime for the pre payment of the IVA
discriminates against imported products. According to Argentina, the
provisions of Article 45 coincide with those of Article III:2. Argentina
argues that, by virtue of Article 45, any person may proceed against the
State if that person considers that the public administration is causing
him injury in any way. Argentina finds it highly significant, therefore,
that importers subject to the mechanism for the pre payment of the IVA
have not launched massive legal actions against the State to claim redress
for the tax burden differentials alleged by the European Communities.
11.249 The European Communities argues that the mere existence of a
domestic remedy against tax discrimination would not be sufficient, per
se, to exclude a violation of Article III:2. The European Communities also
submits that the right of a Member to bring a matter before a panel is not
subject to the prior exhaustion of local remedies. The European
Communities further notes that it is by no means certain that Article 45
provides an effective remedy. In the view of the European Communities, the
wording of Article 45 is different from Article III:2 and, in any event,
Argentina makes a reading of Article 45 which is at variance with the
well-established interpretation of Article III:2.
11.250 We are not persuaded that the reference to "this law" in Article 45
necessarily implies a linkage to RG 3431. Article 45, by its own terms,
relates only to the rates or exemptions provided for in the IVA Law. The
text of Article 45 makes no reference to the collection mechanism foreseen
in RG 3431. Moreover, Argentina has stated that, under Argentinean law,
there is a difference, at least in matters of taxation, between a law (ley),
such as the IVA Law, and a resolution (resolución), such as RG 3431.530 For
these reasons, unlike Argentina, we do not find it significant that
importers subject to, and feeling discriminated by, RG 3431 have
apparently not initiated legal proceedings pursuant to Article 45.531
11.251 Even if Article 45 implied a linkage to RG 3431, it should be borne
in mind that we have found that, as a matter of fact, RG 3431
discriminates against imports, notwithstanding the provisions of Article
45. The existence of a linkage to RG 3431 could not affect this finding,
unless Article 45 would set aside the provisions of RG 3431 to the extent
of a conflict between the provisions of Article 45 and RG 3431. Argentina
has not, however, addressed the legal consequences, under its domestic
law, of possible incompatibilities between the IVA Law and RG 3431. We
therefore see no need to consider this point further.
11.252 For these reasons, we are unable to accept Argentina's argument
that any inconsistencies of RG 3431 with Article III:2, first sentence,
are "cured" by Article 45.
(iii) Conclusions
11.253 As we are unable to accept Argentina's broad counter-arguments, we
confirm the conclusions we have reached in Section XI.C.5(b)(i) regarding
the European Communities' claims that imported products falling under RG
3431 are subject to a tax burden which exceeds that imposed on like
domestic products.
11.254 It follows, therefore, that, by maintaining RG 3431, Argentina is
acting inconsistently with its obligations under Article III:2, first
sentence.
(c) Pre payment of the IG
(i) Claims by the European Communities
11.255 The European Communities has also made a number of claims to the
effect that, pursuant to RG 3543, import transactions are subject to
higher pre payments of the IG than internal sales transactions involving
like products or are subject to such pre payments when internal sales
transactions involving like products are not. Argentina has presented
counter-arguments which are specific to each of the European Communities'
claims. In addition, Argentina has advanced several broad
counter-arguments. Our approach to examining the European Communities'
claims in respect of RG 3543 parallels that we have followed for RG 3431
in respect of the pre payments of the IVA. Accordingly, should our
examination in this Section lead us to the conclusion that one or other of
the European Communities' claims is justified, that conclusion does not
become definitive until and unless we have reached the further conclusion,
in Section XI.C.5(c)(ii) below, that Argentina's broad counter-arguments
are not sustainable.
Lower pre payment rates applicable to internal sales by registered taxable
persons
11.256 The European Communities points out that the rate at which the IG
must be pre-paid, which is either 3 percent or 11 percent, is higher than
the withholding rate on internal sales, which is either 2 percent or 4
percent.
11.257 Argentina argues that the collection of the IG on imports at a rate
of 3 percent corresponds to the average of the withholding rates
applicable to internal sales transactions, which are 2 percent and 4
percent.
11.258 We recall that, pursuant to RG 3543, imports are subject to pre
payment of the IG at a rate of 3 percent.532 As regards internal sales
transactions, the IG is to be pre-paid at a rate of 2 percent in the case
of sales by IG-registered taxable persons and at a rate of 4 percent in
the case of sales by non-IG-registered taxable persons.
533
11.259 It is readily apparent that the 3 percent rate applicable to
imports exceeds the 2 percent rate applicable to like domestic products
sold by IG-registered taxable persons. While it is true, as Argentina
points out, that the rate for imports corresponds to the average of the
rates for internal sales, the fact remains that the rate applicable to
imports is higher than that applicable to like domestic products sold by
IG-registered taxable persons.534
11.260 It must be acknowledged that the 3 percent rate applicable to
imports is lower than the 4 percent rate applicable to like domestic
products sold by non-IG-registered taxable persons. Such reverse
discrimination is, however, of no avail to Argentina. Article III:2, first
sentence, is applicable to each individual import transaction. It does not
permit Members to balance more favourable tax treatment of imported
products in some instances against less favourable tax treatment of
imported products in other instances.535
11.261 We therefore conclude that RG 3543, by subjecting imports to a tax
burden which exceeds that imposed on like domestic products sold by IG-registered
taxable persons, fails to satisfy the requirements of Article III:2, first
sentence.
No pre payment on internal sales of goods destined for the purchaser's own
use or consumption
11.262 The European Communities points out that the IG must be pre-paid on
imports of goods for the importer's own use or consumption. The European
Communities further points out that where natural persons purchase
domestic goods, they are not required to withhold the IG on their payments
to taxable sellers, unless those payments result from the exercise of an
economic activity on the part of those natural persons.536
11.263 It should be recalled that, pursuant to RG 3543, the IG must be
pre-paid at a rate of 11 percent in the case of definitive imports of
goods intended for use or consumption by the importer.537 In contrast, RG
2784 provides that natural persons are required to withhold the IG only
where they make payments for internal purchases resulting from an economic
activity on their part.538 In other words, internal sales of goods intended
for use or consumption by natural persons are not subject to withholding
at source of the IG.
11.264 We are not aware, in the context of an examination under Article
III:2, first sentence, of any justification which could be offered in
support of this discriminatory exemption of the aforementioned type of
internal sales transactions from the requirement to pre-pay the IG. We
therefore conclude that RG 3543, because it requires the pre payment of
the IG on definitive imports of goods intended for use or consumption by
the importer when no such pre payment is required on internal sales of
like domestic goods intended for use or consumption by a natural person,
does not conform to the requirements of Article III:2, first sentence.539
Minimum pre payment threshold and monthly pre payment allowance for
internal sales
11.265 The European Communities notes that the IG must be pre-paid
pursuant to RG 3543 with respect to essentially all import transactions,
irrespective of their value. The European Communities points out that
under RG 2784, on the other hand, no IG is withheld on internal sales (i)
when the amount of IG which would have to be withheld does not reach a
certain threshold amount and (ii) when the purchaser's monthly payments do
not exceed a certain amount.
11.266 Argentina argues that the number of taxable persons subject to RG
2784 is substantially larger than the number of taxable persons subject to
RG 3543. According to Argentina, if no minimum withholding amount had been
fixed, the withholding mechanism would have become inefficient and would
not have helped minimise collection costs. Argentina further contends that
import transactions always involve large sums of money and that it was
therefore not considered necessary to set minimum amounts. Argentina
further points out that, in any event, imported samples of a value not
exceeding a certain threshold are also not subject to collection at source
of the IG.
11.267 With respect to the minimum monthly amounts which are not subject
to withholding under RG 2784, Argentina submits that importers must
pre-pay the IG once, namely when the goods undergo inward customs
clearance. Argentina argues that, in contrast, in the case of internal
sales transactions, the taxable person is liable to withholding on a
monthly basis and hence account is taken of all transactions taking place
during each monthly period, which justifies the setting of the minimum
amounts.
11.268 We note that RG 2784 provides for a minimum pre payment threshold.540
Where a taxable transaction gives rise to an amount to be withheld which
is below that amount, no withholding is to be effected. No such minimum
pre payment threshold is set forth in RG 3543. We further note that RG
2784 provides for a monthly pre payment allowance. Monthly payments for
internal sales involving the same seller and purchaser and not exceeding a
specified amount are not subject to withholding.541 Again, no such
"tax"-exempt threshold amount is envisaged in RG 3543 for import
transactions in like circumstances.
11.269 We begin our analysis with the minimum pre payment threshold.
According to Argentina, the threshold laid down in RG 2784 is necessary
for purposes of efficient tax administration. No such threshold exists
under RG 3543, according to Argentina, because the number of taxable
persons subject to it is substantially smaller and because import
transactions always involve large sums of money. We are unable to accept
these arguments. Neither by its terms nor by implication does Article
III:2, first sentence, permit the imposition of different tax burdens on
imported and like domestic products on the grounds that they are in the
interest of administrative efficiency.542 By the same token, Argentina's
statement that domestic traders outnumber importers, even if true, would
not provide a justification for discriminating against imported products.
Finally, we must note that Argentina has not demonstrated that import
transactions "always" involve large amounts of money.
11.270 We next turn to the monthly pre payment allowance for internal
sales. Argentina submits that these allowances are warranted in the case
of internal transactions as they relate to situations where a series of
transactions take place during each monthly period. Conversely, according
to Argentina, import transactions are instantly "taxable" upon
importation. We are not persuaded by this argument. Like import
transactions, internal sales transactions are subject to pre payment on a
"per transaction" basis.543 This is true, in our understanding, even where a
series of transactions involving the same seller and purchaser is
undertaken within the same month.544 We therefore fail to see a fundamental
difference between internal sales transactions and import transactions in
this regard. In any event, it is clear to us that, by granting a monthly
pre payment allowance to certain domestic sellers based upon sales
transactions with a particular purchaser, which allowance is not available
to importers of like products, Argentina acts inconsistently with its
obligations under Article III:2, first sentence.545
11.271 For the foregoing reasons, we conclude that RG 3543 violates
Article III:2, first sentence, by denying imported products the benefit of
a minimum pre payment threshold and a monthly pre payment allowance when
such benefits are available to like domestic products.
(ii) Broad counter-arguments by Argentina 546,547
Exemption mechanism
11.272 Argentina points out that Article 28 of RG 2784 establishes a
mechanism for the exemption of taxable persons from the various mechanisms
for the collection or the withholding at source of the IG. Argentina notes
that Article 28 provides for the issuance of a special certificate of
non-withholding in situations where the pre payments of the IG in the
relevant tax period could exceed the definitive tax liability arising from
the IG Law. Argentina submits that Article 28 is designed to prevent the
rate differentials challenged by the European Communities from generating
a financial cost which alters the competitive opportunities of imported
and domestic products.
11.273 The European Communities considers that Article 28 does not remedy
the discrimination which is the subject of its complaint. The European
Communities recognizes that importers may be granted an exemption from the
requirement to pre-pay the IG in situations where it can be anticipated
that they will find themselves in a loss position at the end of the
relevant tax period. The European Communities' recalls, however, that its
complaint is concerned with the extra financial cost caused by the pre
payments of the IG during the tax period.
11.274 Argentina has confirmed that the exemption mechanism set forth in
Article 28 of RG 2784 applies to both imported and domestic goods.548 In our
understanding, the availability of the exemption mechanism is conditional
upon a showing by the taxable person that the pre payments of the IG to be
made in the course of the annual tax period could exceed the definitive
tax liability under the IG Law. Applications for exemption may be filed
before the definitive tax liability is assessed.549
If the Argentinean tax
authorities determine that an overpayment situation could arise, an
exemption from the requirement to pre-pay the IG is granted.550 Exemptions
are valid for the tax period during which the application for exemption is
filed and also cover part of the following tax period.
11.275 In light of the foregoing, we consider that, by virtue of Article
28, an eligible importer can to some extent prevent overpayment situations
from arising. As an incidental effect, the importer who is granted an
exemption can also avoid the discriminatory tax burden resulting from RG
3543. However, Argentina has not clearly explained to us what, if any,
remedy is available to an importer who files an application for exemption
only after having made a certain number of pre payments of the IG. In our
view, Argentina could avoid a violation of Article III:2, first sentence,
only to the extent that pre payments already made are refunded with
appropriate interest.551 Even disregarding this open issue, the fact remains
that Article 28 is a priori of no avail to those importers who cannot
demonstrate a possible overpayment situation in the course of a given tax
period.
11.276 We are therefore not persuaded, even basing ourselves on
assumptions most favourable to Argentina, that Article 28 ensures the
conformity of RG 3543 with Article III:2, first sentence.
Refund mechanism
11.277 Argentina notes that, in case the pre payments of the IG made in
the course of the tax period exceed the definitive tax liability arising
from the IG Law, the taxable person may request the refund of the excess
payments pursuant to Resolution 2224. Argentina further points out that
the actual overpayments are refunded with interest in accordance with
Resolution (MeyOySP) No. 1253/98 552 Argentina submits that, like the
exemption mechanism provided for in Article 28, the refund mechanism
serves to prevent the rate differentials challenged by the European
Communities from generating a financial cost which alters the competitive
opportunities of imported and domestic products.
11.278 The European Communities points out that the refund mechanism does
not provide for the refund of the financial costs caused by the pre
payments of the IG during the tax period. It only allows the refund of the
amount by which the pre payments of the IG made during the tax period
exceed the taxable person's definitive tax liability under the IG Law. The
European Communities considers therefore that the refund mechanism fails
to dispose of the European Communities' complaint.
11.279 We note that, notwithstanding our request, Argentina has not
provided us with documentary evidence regarding the refund mechanism,
which it claims is set out in RG 2224. From Argentina's submissions, it
appears that RG 2224 envisages the possibility to request the refund of
the pre payments of the IG made in situations where taxable persons have
made actual pre payments in excess of their definitive tax liability under
the IG Law. According to Argentina, where a refund is granted, not only
are the full amounts of the excess payments refunded, but interest is paid
on those amounts in accordance with Resolution 1253.553 This interest is
calculated as of the date of filing of a refund request.554
11.280 Even disregarding the lack of documentary support for Argentina's
argument, we are not persuaded, on the basis of Argentina's submissions,
that the refund mechanism precludes RG 3543 from infringing Article III:2,
first sentence. It is sufficient to note in this regard that the refund
mechanism is apparently available only to taxable persons, including
importers, who are in a situation of actual overpayment of the IG, but not
to all others. Moreover, those importers who are granted a refund receive
interest only as of the date of filing of their refund request and not as
of the date on which they have made the pre payments of the IG. They thus
do not appear to be compensated for the full amount of interest lost or
paid as a result of the pre payments of the IG made in excess of their
definitive IG liability.
11.281 In light of the foregoing, we do not accept Argentina's argument
based upon the refund mechanism.
Magnitude of the tax burden differential
11.282 Regarding Argentina's argument that the magnitude of the tax burden
differential resulting from RG 3543 and RG 2784 is de minimis, we note
that our considerations relating to the same argument in respect of the
pre payments of the IVA envisaged in RG 3431 and RG 3337 are equally
applicable here.555
Accordingly, we disagree with Argentina's
argument in respect of the magnitude of the tax differential.
(iii) Conclusions
11.283 As we are unable to accept Argentina's broad
counter-arguments, we confirm the conclusions we have arrived at in
Section XI.C.5(c)(i) regarding the European Communities' claims that
imported products falling under RG 3543 are subject to a tax burden which
exceeds that imposed on like domestic products.
11.284 It follows, therefore, that, by maintaining RG 3543,
Argentina is acting inconsistently with its obligations under Article
III:2, first sentence.
Notes
512 Article 5 of RG 3337 does not provide for a minimum
transaction value
threshold, as suggested by the European Communities. It is nevertheless clear to
us that the European Communities' claim relates to Article 5 and the minimum pre
payment ("tax") threshold provided for therein. Since the European Communities
has specifically referred us to Article 5 and has cited the correct threshold
amount and since Argentina has not raised any objection to our consideration of
this claim and has in fact built its defence on the assumption that the European
Communities' claim concerns Article 5, we find that we may proceed with our
examination of this claim. Argentina's rights of defence have not, in our view,
been impaired as a result of the European Communities' error.
513 Parties' replies to Panel Question 30.
514 We note in this regard that Argentina has not submitted direct documentary
evidence supporting its assertion that samples not exceeding a certain value are
not covered by the provisions of RG 3431.
515 The broad counter-arguments grouped together here are not in the nature of
affirmative defences, but are brought forward by Argentina in an attempt to
rebut the European Communities' claims in respect of RG 3431. We have already
found in Section XI.C.5(b)(i), albeit not definitively, that the European
Communities has succeeded in establishing that RG 3431 is inconsistent with
Article III:2, first sentence. It is therefore up to Argentina to demonstrate
that its broad counter-arguments rebut the European Communities' claims and that
we should therefore modify our earlier findings of violation.
516 For a numerical example presented by Argentina, see para. 8.116 of this report.
517 Report of the Working Party II on Schedules and Customs Administration, adopted
on 26 February 1955, BISD 3S/205.
518 We simply note that this issue was specifically addressed, but not resolved, by
the Working Party II on Schedules and Customs Administration. The relevant
passage of the Working Party's report reads as follows:
The delegate for Germany proposed the insertion of the following interpretative
note to paragraph 2:
"the words 'internal taxes or other internal charges of any kind in excess of
those applied, directly or indirectly, to like domestic products', as employed
in the first sentence of paragraph a, shall be construed to denote the overall
charge, including the charges borne by like domestic products through being
subjected to internal taxes or other internal charges at various stages of their
production (charges borne by the raw materials, semi-finished products,
auxiliary materials, etc. incorporated in, and by the power consumed for the
production of, the finished products)."
The Working Party considered the significance of the phrase "internal taxes or
other internal charges" in relation to taxes which are levied at various stages
of production, and in particular whether the rule of national treatment would
allow a government to tax imported products at a rate calculated to be the
equivalent of the taxes levied at the various stages of production of the like
domestic product or only at the rate of the tax levied at the last stage.
Several representatives supported the former interpretation, while the
representative of the United States, on the other hand, thought the reference to
internal taxes covered only a tax levied on the final product competitive with
the imported article. Against the latter view it was argued that that
interpretation would establish a discrimination against countries which chose to
levy taxes at various stages and in favour of those which levy a single turnover
tax on finished products. Some other representatives were of the opinion that
the equivalent of the taxes on the final product and on its components and
ingredients would be permitted, but not taxes on power consumed in manufacture,
etc. In view of these differences of opinion, the Working Party does not
recommend the insertion of an interpretative note, it being understood that the
principle of equality of treatment would be upheld in the event of a tax on
imported products being challenged under the consultation or complaint procedure
of the Agreement.
See the Working Party II Report on Schedules and Customs Administration, supra, para. 10. We also note that the Appellate Body report on United States – FSC may
have implications for the ability of a Member with a territorial system of
taxation to assess excess taxes to account for processes undertaken on the
imported product when outside the importing Member's jurisdiction, which
processes might be accounted for if a world-wide system were utilised.
519 Nor has Argentina produced any evidence demonstrating that equivalence is
achieved at least by reasonable approximation, which might be appropriate in
situations where the calculation of the exact amount of adjustment would be
overly difficult or administratively burdensome. For the proposition that
account may be taken, for purposes of border tax adjustment, of the fact that
the calculation of the exact amount of adjustment may be difficult in some
cases, see the Working Party Report on Border Tax Adjustments, supra, at para.
16.
520 It should be recalled that the European Communities' complaint concerns only the
general collection rates provided for in Article 3 of RG 3431. The European
Communities does not challenge the special and lower collection rates also laid
down in Article 3 of RG 3431. Those special rates apply to import transactions
involving certain specified products, including live bovine animals, offal of
bovines as well as fresh fruit and vegetables.
521 Exhibit EC II.7 (hereafter "RG 17").
522 Argentina notes that overpayment might arise, for example, because the mark-up
with which a taxable person operates is lower than the added value presumed
under the different collection regimes. See Argentina's reply to Panel Question
45(b).
523 In reply to Panel Question 45(a), Argentina has confirmed that the exemption
mechanism envisaged in RG 17 is available to importers.
524 See Article 2 of RG 17.
525 See Article 5 of RG 17.
526 Argentina's reply to Panel Question 77.
527 For the parties' quantitative estimate of one particular tax burden differential
see paras. 8.179 and 8.181 of this report.
528 Appellate Body Report on
Japan – Alcoholic Beverages II, supra, at p. 23
(footnote omitted).
529 We recall in this regard that it is immaterial for purposes of the legal
assessment of RG 3431 that, pursuant to the IVA Law, the same ultimate tax rates
apply to imported and like domestic products.
530 According to Argentina, at least in tax matters, laws are enacted by the
national legislature, the Congreso de la Nación, whereas resolutions are
promulgated by administrative agencies. See Argentina's Second Oral Statement,
at pp. 6-7.
531 It may be noted that, to the extent Argentinean law requires the institution of
legal proceedings to ensure the conformity of RG 3431 with Article III:2, first
sentence, this could in itself fall short of the unconditional and full
compliance required of Members. See e.g. the Panel Report on Argentina –
Measures Affecting Imports of Footwear, Textiles, Apparel and Other Items,
adopted on 22 April 1998, WT/DS56/R, at para. 6.68.
532 See Article 4 of RG 3543. Article 4 also provides that definitive imports of
goods intended for use or consumption by the importer are subject to a
collection rate of 11 percent. The collection rate of 11 percent is addressed
under the next sub-heading.
533 See Article 14.3 of RG 2784.
534 It should again be recalled in this context that the identity and circumstances
of the persons involved in sales transactions cannot, in our view, serve as a
justification for tax burden differentials. See the Panel Reports on United
States – Gasoline, supra, at para. 6.11; United States – Malt Beverages, supra,
at para. 5.19. See also footnote 499 of this report.
535 See the Panel Report on United States – Tobacco, supra, at para. 98. For reports
with respect to Article III:4 of the GATT 1994, see the Panel Reports on United
States – Section 337, supra, at para. 5.14; United States – Gasoline, supra, at para. 6.14.
536 Argentina has not submitted specific arguments in respect of this claim by the
European Communities.
537 See Article 4 of RG 3543.
538 See Article 3 f) of RG 2784.
539 In our view, the European Communities does not challenge the fact that imports
for importers' own use or consumption are subject to pre payment of the IG at a
rate of 11 percent, whereas internal sales transactions are taxed at rates of
either 2 percent or 4 percent, depending on whether the sales are made by IG-registered
or non-IG-registered taxable persons. The European Communities' submissions on
this issue, taken as a whole, do not suggest that the European Communities makes
such a claim. Those submissions do not, in any event, contain specific arguments
supporting and substantiating such a claim. See EC First Written Submission, at
para. 96; First Oral Statement, at paras. 53-55; Second Written Submission, at
paras. 103-105. We therefore refrain from making findings in respect of these
rate differentials. It should nonetheless be pointed out that Argentina has
presented arguments to justify one of these rate differentials. See paras.
8.187-8.189 of this report. With respect to Argentina's argument that that
differential is justified in light of the tax-bearing ability of the taxable
persons concerned, we simply recall that we have previously expressed the view
that it is not permissible under Article III:2, first sentence, to impose
different tax burdens on imported and like domestic products on the basis of the
circumstances or characteristics of the purchasers or sellers of those products.
As concerns Argentina's argument that the differential is beyond question in
view of the different uses for which the goods in question are intended, we
limit ourselves to noting that, in our view, it is not the actual use to which a
product is put by its user which is relevant for purposes of a "like products"
determination under Article III:2, first sentence, but the potential end-uses of
the products as such.
540 See Article 16 of RG 2784.
541 See the introductory paragraphs of Articles 13 and 15 of RG 2784 as well as
Article 15.3 of RG 2784.
542 Parties' replies to Panel Question 30.
543 See Article 5 of RG 2784. We note that Argentina does not explain how its
contention that internal sales transactions are subject to withholding on a
monthly basis can be reconciled with the provisions of Article 5 of RG 2784. See
Argentina's First Written Submission, at para. 125. If it were true that
internal sales transactions are subject to withholding on a monthly basis
whereas import transactions are subject to collection at source on a "per
transaction" basis, this could, in our view, add to the existing tax burden
differential with respect to imported and like domestic products. Since our
overall conclusion on the European Communities' claim in respect of the monthly
pre payment allowance for internal sales is not affected by whether or not the
IG is withheld on internal sales transactions on a monthly basis, we need not
pursue this issue further.
544 See Article 13 of RG 2784.
545 See the Panel Reports on
United States – Gasoline, supra, at para. 6.11; United
States – Malt Beverages, supra, at para. 5.19. See also footnote 499 of this
report. It should also be noted that Argentina has not explained why it would
not be possible to make available to all importers a monthly pre payment
allowance equivalent to that provided for in RG 2784.
546 It should be borne in mind, in accordance with what we have previously said in
Section XI.C.5(b)(ii), that the broad counter-arguments grouped together here
are not in the nature of affirmative defences.
547 It appears to us that Argentina does not contend that the discriminatory tax
burden imposed on importers by RG 3543 adjusts for prior-stage pre payments
borne by the like domestic product. We understand Argentina to argue that the
interest lost or paid by taxable persons as a result of the pre payment of the
IG, as envisaged in RG 2784, cannot be passed on to the next processing or
marketing stage. See Argentina's reply to Panel Question 32; Argentina's Second
Oral Statement, p. 8. In those circumstances, we fail to see a rationale for
adjustment for prior-stage pre payment of the IG. We therefore do not address
this counter-argument here. In any event, our considerations on the same
argument in respect of the pre payments of the IVA envisaged in RG 3431 would be
equally applicable. See Section XI.C.5(b)(ii) above.
548 Argentina's reply to Panel Question 45(a). Argentina's reply is consistent with
the provisions of Article 9 of RG 3543. Argentina further refers to Circular
1277. See para. 8.207 of this report.
549 Argentina has stated that this is subject to the condition that Article 28 of RG
2784 does not stipulate as a condition that the taxable persons must have a
balance in their favour. See Argentina's reply to Panel Question 45(c). No such
stipulation is evident on the face of the currently applicable Article 28.
550 Exemptions do not extend to pre payments to be made on the basis of the income
of employees. See Argentina's reply to Panel Question 78.
551 Argentina has referred to General Resolution (DGI) No. 2224 (hereafter "RG
2224"), according to which taxable persons may apparently request the refund of
excess pre payments. Argentina has not made clear, however, how RG 2224 relates
to the provisions of Article 28 and, in particular, whether a taxable person can
be granted an exemption under Article 28 and at the same time receive a refund
of pre payments already made. We note that Argentina has not submitted to us RG
2224.
552 Exhibit ARG-XXXVII (hereafter "Resolution 1253").
553 Argentina's reply to Panel Question 45(e). Resolution 1253 sets the interest
rate payable at 0.5 percent per month.
554 Argentina's reply to Panel Question 45(e).
555
See Section XI.C.5(b)(ii) above. A short summary of the
parties' arguments relating to this issue can also be found in that Section.
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